Mattel Inc. is expected to report first-quarter earnings on Thursday after the market closes.
The year is off to a slow start for the toy business, analysts say, and Mattel’s
earnings could reflect the industry pressures of excess inventory and reduced customer spending.
Moreover, toy makers are facing what experts call “age compression,” with a smaller segment of children showing an interest in traditional toys.
Mattel shares have an average overweight rating with a price target of $31.42, 19.8% higher than Monday’s close.
Here’s what to expect:
Earnings: Analysts polled by FactSet expect a loss of 17 cents per share compared with a loss of 13 cents per share last year.
Estimize, a software platform that crowdsources estimates from buy-side analysts, hedge-fund managers and others, sees a loss of 16 cents per share.
Revenue: FactSet analysts see sales of $798.0 million, down from $869.4 million last year.
Estimize sees sales of $818.6 million.
Share price: Mattel’s shares are down 8.2% for the year so far, and 25.5% for the past 12 months. The S&P 500 index
is up 4.7% for 2017 to date.
Other issues: It’s becoming difficult to get kids psyched about the Barbie dolls, Hot Wheels cars and other toys Mattel sells, experts say.
“Age compression is hitting toy makers revenue severely, and Mattel is no exception,” Zacks said in a March 22 post. As an example, the demand for Barbie used to be for children ages three through nine. Now its appeal has narrowed to kids ages three to six as older kids turn to videogames and electronic devices.
“This in turn is tapering the demand for traditional toys,” the post said.
Stifel analysts forecast a 6% decline in doll sales for the first quarter, which would be 33% of gross sales. Stifel includes Barbie and American Girl in the doll category. But this doesn’t include Disney Princess dolls, which is now licensed to Hasbro Inc.
and has already comped.
Analysts forecast “mixed performance” with Barbie down 2%, core Fisher-Price merchandise down 3%, Hot Wheels up 2% and the entertainment category down 15% because it has lapped the “Batman vs. Superman” movie.
“The anticipated year-over-year decline is based on excess retail inventory entering 2017 and our view here is fairly consistent with the Street and management’s outlook,” Stifel wrote in a note published April 4. Stifel rates Mattel shares hold with a $26 price target.
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Toys R Us reported challenges going into the first quarter in its latest earnings report, “with toy price discounting and some retailers ‘dumping’ inventory,” according to a B. Riley note published Monday. Analysts expect year-over-year first-quarter declines in sales and operating profit at all of the toy stocks they cover – Mattel, Hasbro and JAKKS Pacific Inc.
– with “robust” year-over-year growth at Mattel and Hasbro in the second quarter owing to “Cars 3,” the latest installment in the animated movie franchise, at Mattel and both the Spider-Man and Transformers movies for Hasbro.
After the Toy Industry Association’s annual toy fair in February, UBS analysts say there was interest in the Barbie Dreamhorse, which is priced around $100, and Barbie’s Dreamtopia collection, but industry checks indicate struggles between January and March for U.S. toy retail. Some have said the February declines could have been due to tax return delays.
“Though perhaps more meaningful for Wal-Mart given its sizable cash customer, it’s only partial read-through for Hasbro/Mattel’s broader customer base,” UBS wrote in a note published this month. Analysts say Wal-Mart
accounts for about 16% to 18% of sales for the brands.
UBS rates Mattel shares buy with a $32 price target.
“We do not expect to learn very much from Mattel’s first quarter earnings report,” wrote MKM Partners in a Tuesday note. “By far the smallest quarter of the year (about 15% of annual revenue), any upside or downside relative to forecasts is unlikely to yield significant clues toward new product successes or greater operational efficiencies.”
The company’s new chief executive, Margo Georgiadis, could use the call the outline her plan for the next year or two.
“However, as Ms. Georgiadis clearly stated, toys is a high leverage business, which means meaningful long-term operating margin expansion is tied to revenue growth,” the note said. “Given the company’s track record over the last half-decade and multiple turnaround efforts ending in disappointment, we believe there are numerous reasons to be skeptical until proven otherwise.”
MKM rates Mattel shares neutral with a $27 price target.