The toymakers are having a tough time selling their products. Despite an increase in  consumer spending in the U.S., customers are unwilling to spend on traditional toys. This has resulted in lower sales for the toy retailers. However, this decline in demand is not related to the income of the people, but to the change in tastes and preferences of the core customers. Children are now less interested in traditional toys and have shifted to tablets and other electronic gadgets.
This has given a blow to the traditional toy retailers, such as Mattel (MAT, Financial), which specializes in selling Barbie dolls to the female kids. Barbie dolls were very popular among customers until the advent of tablets and other electronic toys. This has affected Mattel’s results largely. Its shares have fallen 34% in the last one year. However, its last reported quarter results brought some relief as the top line surged more than expected. This resulted in an increase of 6.6% in share price.
The details of the quarter
Revenue for the quarter dropped 2.5% to $922.7 million, as compared to the previous year. Thus, the top line was higher than the analysts’ estimate of $901 million. In fact, sales would have been higher if the dollar wouldn’t have got stronger. Continued strength in the dollar has affected growth for most of the retailers and Mattel was not an exception. Excluding currency fluctuations, the top line actually rose 5% over last year.
Barbie sales fell 5% during the quarter of the above mentioned reasons. However, sales of Fischer Price products were up by 3%, as demand for its products were higher. The toy retailer needs to create toys which connect with the customers, which would attract kids to its stores.
Instead of going to the regular toys, children are getting attracted to toys based on movies such as Frozen. Film based toys are resonating well with the customers and expanding into this should help the company make more money.
The company registered a loss of $0.17 per share. The loss was wider than $0.03 per share in the last year. However, the analysts’ estimate was at $0.09 per share. Although this time the company was far below the expectations, its recently undertaken cost saving initiatives should make the bottom better.
Looking forward
The retailer’s acquisition of MEGA Brands in 2014 was one of the most important steps for growth. This buyout has helped the company expand and strengthen its presence in the toy market. Further, it should be beneficial in the future too.
Hurdles
Mattel faces stiff competition from Hasbro (HAS, Financial), which is much ahead of Mattel, when it comes to offering the right products according to the changes in customer tastes and preferences. Its new products resonate well with the customers.
Moreover, weak consumer spending and high competition from other industry players have affected sales. One of the biggest blow for the company was the fact that it lost Walt Disney (DIS, Financial) license to make Princess dolls to Hasbro from 2016.
However, in this year Mattel will benefit from the release of a number of the popular movie series such as the Jurassic Park, Star Wars and Avengers. Toys related to such movies should help in attracting more customers.
Winding it up
Overall, Mattel is facing a number of problems. Although it reported a great top line and impressed the investors, its bottom line was disheartening. Loss of license to competitor, stiff competition and a decline in consumer spending has made Mattel’s future unattractive. Additionally, a stronger dollar is expected to hurt growth in the future in 2015. Investors should stay on the sidelines and watch this company closely.
