Mattel Inc. (MAT) disappointed once again as it posted lower-than-expected third quarter 2014 results due to weak demand for its traditional toys. Net sales of $2.02 billion in the third quarter missed the Zacks Consensus Estimate by 6% and also declined 8% year over year, primarily reflecting poor performance in the domestic as well as international markets. In fact, this was the fourth consecutive quarter of poor sales.
Sales of Barbie and Fisher-Price dropped significantly during the quarter. We believe increasing inclination of kids toward electronically driven devices has lowered the demand for traditional products. Notably, adjusted earnings of 98 cents per share missed the Zacks Consensus Estimate by 6.7% and also declined 15.5% year over year owing to weak sales and lower margins.
Mattel has to battle a broad array of alternative modes of entertainment including video games, MP3 players, tablets, smartphones and other electronic devices. Also, Mattel's focus on toys such as building blocks has not helped much as children are gradually shifting to electronic games and tablets.
This toy maker thus faces stiff competition from manufacturers of such products. Besides Mattel, other companies like JAKKS Pacific, Inc. (JAKK) and Hasbro Inc. (HAS) are also bearing the brunt of changing consumer preference.
The sluggish performance of the Fisher-Price and Barbie Brands has been a matter of concern for long for Mattel. Both these flagship brands have been posting soft sales since the beginning of 2013. In fact, sales of the iconic doll, Barbie have fallen in nine out of the past eleven quarters. Moreover, weak consumer spending amid sluggish economic growth in the U.S. adds to the woes. Customers are reducing their non-essential purchases, which is weighing on the company’s sales.
Mattel is currently losing market share to mass merchants. The loss of rights to make dolls based on The Walt Disney Company (DIS) characters to Hasbro compounds the company’s woes. Currently, Mattel holds the rights to develop dolls based on characters from the animated movie, Frozen and Disney Princess. However, the new deal will grant Hasbro rights to manufacture these dolls.
The partnership with Disney has been a savior for Mattel so far. Strong sales of the Frozen line of products helped the company to somewhat mitigate the weak performance of Barbie dolls in the recent quarters. The company is likely to lose a substantial chunk of revenues, especially at a time when the toy maker is battling intense competition as a result of increasing popularity of electronic and mobile games. Mattel presently has a Zacks Rank #4 (Sell).
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