Shares of Mattel, Inc. (MAT) declined 1.3% after fellow toymaker Hasbro Inc. (HAS) won the lucrative strategic merchandising agreement with Disney Consumer Products – the merchandising subsidiary of The Walt Disney Company (DIS). Hasbro’s shares rose almost 4% in response.
Currently Mattel holds the profitable rights to develop dolls based on characters from the animated movie – Frozen – and Disney Princess stories like Cinderella, Beauty and The Beast, and The Little Mermaid. However, the new deal will grant Hasbro rights to manufacture these dolls based on Disney Princess stories and characters, beginning 2016, worldwide, except in Japan.
Investors’ positive sentiment surrounding Hasbro was due to the fact that the deal will further strengthen its girls division, which has historically been a strong segment. For the first half of 2014, revenues in the company’s girls segment surged 15% year over year to $302.5 million, backed by demand for brands such as My Little Pony.
Mattel Left Frozen?
The picture is, however, not so rosy for Mattel, which has been struggling with declining sales of its flagship brands like – Barbie and Fischer-Price.
The partnership with Disney was a savior for Mattel. Strong sales of the Frozen line of products helped the company to somewhat mitigate the weak performance of Barbie dolls in the recent quarters. In fact, sales of Barbie have fallen in 8 out of the past 10 quarters. As a result, the company saw extremely weak revenue figures, leading to huge earnings miss of over 84% in its most recent quarter.
The loss of the merchandising agreement in 2016 will be a blow to Mattel as it will lose a substantial chunk of revenues, especially at a time when the toy maker is battling intense competition from the rise of electronic and mobile games.
Other Stocks to Consider
Both Mattel and Hasbro carry a Zacks Rank #3 (Hold). A better-ranked stock in the same sector include Activision Blizzard, Inc. (ATVI), which carries a Zacks Rank #2 (Buy).
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