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Mattel (MAT) Falls on Wider-than-Expected Q2 Loss, Sales Lag

Shares of Mattel Inc. MAT declined nearly 5% in afterhours trading on Jul 27, after the company reported weak results in the second quarter of 2017.

Earnings & Revenue Discussion

Mattel’s adjusted loss per share of 14 cents was wider than the Zacks Consensus Estimate of a loss of 8 cents. Also, the incurred loss was wider than the prior-year quarter loss of 2 cents.

Notably, revenues of $974.5 million rose 2% year over year as reported and 3% in constant currency. However, sales failed to surpass the consensus mark of $1 billion by nearly 3%. Higher sales of "Cars 3" products failed to offset weak demand for its key brands such as American Girl, Barbie and Fisher-Price.

Quarter Highlights

Worldwide gross sales were up 1% year over year as reported and 2% in constant currency.

Gross sales in North America (including the U.S., Canada and American Girl) declined 2% as reported and in constant currency. Meanwhile, in the International region, gross sales increased 6% year over year (up 8% on a constant currency basis).

Notably, gross margin decreased 430 bps to 41% from 45.3% recorded in the year-ago quarter. This was due to higher royalty expense, unfavorable product mix, lower licensing income and higher product costs.

Moreover, adjusted operating loss for the quarter was $40.1 million comparing unfavorably with the prior-year quarter operating income of $6.2 million.

Mattel, Inc. Price, Consensus and EPS Surprise

 

Mattel, Inc. Price, Consensus and EPS Surprise | Mattel, Inc. Quote

Worldwide Revenues by Brand

Mattel, through its subsidiaries, sells a broad variety of toy products that are grouped into four major brand categories: Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

As reported, worldwide gross sales at Mattel Girls & Boys Brands rose 10% to $609.9 million year over year (up 11% on a constant-currency basis). The upside was driven by a 58% rise (59% in constant currency) in the Entertainment business mainly backed by sales of Cars 3 products.

However, the results were somewhat offset by a 5% fall in Barbie sales (down 4% in constant currency) given lower licensing income. The Other Girls brands decreased 28% as reported and in constant currency, due to declines in Monster High and Ever After High sales. Notably, the Wheels category too dropped 6% in the quarter (down 5% in constant currency).

Gross sales at Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends and Power Wheels brands, slipped 3% year over year to $335 million (down 2% in constant currency).

Gross sales at American Girl Brands were $64 million, down 6% from the year-ago quarter as reported and on a constant currency basis.

Gross sales at Construction and Arts & Crafts Brands, which includes the Mega Bloks and RoseArt brands, were $53 million, down a significant 27% from second-quarter 2016 (down 26% in constant currency). The fall came primarily due to declines in Mega Bloks licensed products.

Performance of Other Toymakers

Among other toymakers, Hasbro Inc. HAS posted mixed second-quarter results, wherein earnings surpassed the Zacks Consensus Estimate while revenues slightly lagged the same. Meanwhile, JAKKS Pacific, Inc. JAKK reported wider-than-expected loss. Also, sales were lower than anticipated in the quarter.

Zacks Rank & Stock to Consider

Mattel currently carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock in the same sector is Nintendo Co., Ltd. NTDOY sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Nintendo’s fiscal 2018 earnings moved up 8.3% over the last 60 days. Meanwhile, EPS is expected to skyrocket 180.2% for the same period.

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