Technological innovation has forced tech companies to be on their toes and keep changing with new advancements. Even toy companies are going through the same environment, trying to adapt to the dynamic nature of the toy market and changing customer needs and preferences. Toy companies are making use of new technologies to lure customers. As consumers become increasingly cautious about their spending, industry players such as Hasbro (HAS) are going through a difficult phase. Nevertheless, they haven’t given up and are trying their best to stage a comeback.
However, Mattel (MAT) has always been in a better position than its rival Hasbro. But, Mattel’s first quarter faced some odds which weighed on its results. Nonetheless, the numbers were way ahead of the Street’s expectations. Let us take a closer look into it.
The Quarter in Detail
Revenue declined 5% to $946.2 million over the last year and reported a loss of $0.03 per share. The results were affected because of continued weak Entertainment unit sales and a decline in toy sales related to the movie “Cars 2.” Also, the company experienced a decrease in gross margin to 50.9%, from 54.2% in the same period last year. The contraction of the gross margin and drop in earnings was obvious since, Mattel had increased its promotional spending.
Moreover, the toy maker’s buyout of HIT Entertainment, a kids’ TV firm, and 5% sales growth in American Girls brand drove revenue higher. Also, the Disney Princess toys, contributed to the top line. However, revenue from Fisher-Price plunged 6% during the quarter.
Mattel’s geographical performance was also not up to the mark, with a 2% drop in North America and 7% in the International markets. Revenue from the International segment was hampered by weak demand from Europe and Asia, and was also affected by unfavorable currency fluctuations.
Mattel has always been a prominent player in the industry and has given better returns than Hasbro, in the last five years. Mattel’s stock price has appreciated 156.1%, compared to Hasbro’s appreciation of 133.5% over the last 5 years.
The growing importance of tablets and smart phones has had an adverse impact on the toy companies, since people have started spending leisure time on such gadgets instead of going for other modes of fun, like toys. However, both Mattel and Hasbro have intended to overcome the problem by launching games that interact with such gadgets.
Additionally, Mattel will be partnering with retailers, so that it can keep the latter updated with its new and hottest offerings.
The company will also be promoting its toys heavily by launching an ad campaign in the international market next year. The campaign will be accompanied by new products and new packaging to attract customers.
Considering the past performance and the future plans, Mattel looks like a worthy investment going forward. Also, the company has been an investor favorite, owing to its habit of paying dividends. The company not only repurchased its shares during the quarter, but also declared a dividend of $0.38 per share. Moreover, with the spring season ahead and a number of strategies in place, Mattel is expected to win investors' hearts more than it already has.