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Here's Why You Should Retain Mattel (MAT) Stock for Now
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Mattel, Inc. (MAT - Free Report) is poised to benefit from product innovation, digital efforts and robust Hot Wheels sales. This and the emphasis on the cost-saving program bodes well. However, inflationary pressures and supply chain challenges are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Likely to Drive Growth
Mattel is likely to benefit from its strong product line-up that includes core brands, licensed brands and lucrative product associations. Moreover, its foray into other consumer product categories, such as apparel, fashion and accessories, bode well. The company has been undertaking efforts and focusing on better execution of marketing and promotional initiatives to bring back its flagship brands, Barbie and Fisher-Price, to their former positions. In fact, the company has formed a brand development framework to unlock the scale and profitability of its brands and modernize them for the digital world. Markedly, the company is making significant progress in transforming Mattel into an IP-driven high-performing toy company.
Mattel continues to capture the full value of its IP and transform itself into a high-performing toy company. To this end, the company is leveraging its resources to relaunch its catalog IP, including Masters of the Universe, Matchbox and Monster High. Notably, the company is optimistic in this regard owing to its upside potential and built-in fan base. MAT is strengthening its partnership with major entertainment companies, including Disney, Microsoft, Nickelodeon, Nintendo, Universal, Warner Bros and WWE. Through the association, the company has licensing agreements for several highly-anticipated properties in 2022 and beyond.
Robust Hot Wheels sales have impressed investors. The company has been witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects. During the third quarter 2022, gross billings at the Hot Wheels brand rose 13% (on a reported basis) and 17% (at constant currency basis) year over year. In North America and International Hot Wheels sales rose 2% and 26% year over year, respectively, on a reported basis.
Mattel is also focusing on cost-saving efforts to boost its bottom line. Through its current cost-saving program, the company remains focused on expanding margins. It simplifies its organization structure, optimizing processes and supply chain to generate savings across operations. The program contributed $24 million of incremental savings to the cost of goods for the third quarter of 2022. The company anticipates the program and the integration of the Capital Light Program to deliver incremental savings of $80-$90 million in 2022 and additional savings of $250 million by 2023.
Concerns
Image Source: Zacks Investment Research
Shares of Mattel have declined 19.3% in the past year compared with the industry’s 8.7% fall. The downside was mainly caused by inflationary pressures, supply chain challenges and COVID-19-related disruptions, including temporary business closures, reduced retail traffic and local restrictions. In China, the company’s sales were affected by COVID-related retail closures during the third quarter of 2022. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Mattel has been continuously incurring increased expenses, which have been detrimental to margins. During the third quarter of 2022, the cost of sales increased 5% year over year. The increase in the cost of sales was driven by higher product and other costs, higher royalty expenses, and higher outbound freight and logistics expenses. Gross margin in the third quarter of 2022 declined because of cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and unfavorable foreign exchange. However, this was largely offset by favorable pricing actions and incremental realized savings from the Optimizing for Growth program. The company anticipates the challenging macroeconomic environment to persist for some time.
Hilton Grand Vacations currently has a Zacks Rank #1. HGV has a trailing four-quarter earnings surprise of 3.7%, on average. The stock has declined 25.6% in the past year.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates a rise of 4.7% and 24.6%, respectively, from the year-ago period’s levels.
RCI Hospitality currently has a Zacks Rank #2 (Buy). RICK has a trailing four-quarter earnings surprise of 6.1%, on average. The stock has gained 26.6% in the past year.
The Zacks Consensus Estimate for RICK’s 2023 sales and EPS indicates growth of 12.7% and 10.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has declined 5.1% in the past year.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates a surge of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.
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Here's Why You Should Retain Mattel (MAT) Stock for Now
Mattel, Inc. (MAT - Free Report) is poised to benefit from product innovation, digital efforts and robust Hot Wheels sales. This and the emphasis on the cost-saving program bodes well. However, inflationary pressures and supply chain challenges are a concern.
Let us discuss the factors highlighting why investors should retain the stock for the time being.
Factors Likely to Drive Growth
Mattel is likely to benefit from its strong product line-up that includes core brands, licensed brands and lucrative product associations. Moreover, its foray into other consumer product categories, such as apparel, fashion and accessories, bode well. The company has been undertaking efforts and focusing on better execution of marketing and promotional initiatives to bring back its flagship brands, Barbie and Fisher-Price, to their former positions. In fact, the company has formed a brand development framework to unlock the scale and profitability of its brands and modernize them for the digital world. Markedly, the company is making significant progress in transforming Mattel into an IP-driven high-performing toy company.
Mattel continues to capture the full value of its IP and transform itself into a high-performing toy company. To this end, the company is leveraging its resources to relaunch its catalog IP, including Masters of the Universe, Matchbox and Monster High. Notably, the company is optimistic in this regard owing to its upside potential and built-in fan base. MAT is strengthening its partnership with major entertainment companies, including Disney, Microsoft, Nickelodeon, Nintendo, Universal, Warner Bros and WWE. Through the association, the company has licensing agreements for several highly-anticipated properties in 2022 and beyond.
Robust Hot Wheels sales have impressed investors. The company has been witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects. During the third quarter 2022, gross billings at the Hot Wheels brand rose 13% (on a reported basis) and 17% (at constant currency basis) year over year. In North America and International Hot Wheels sales rose 2% and 26% year over year, respectively, on a reported basis.
Mattel is also focusing on cost-saving efforts to boost its bottom line. Through its current cost-saving program, the company remains focused on expanding margins. It simplifies its organization structure, optimizing processes and supply chain to generate savings across operations. The program contributed $24 million of incremental savings to the cost of goods for the third quarter of 2022. The company anticipates the program and the integration of the Capital Light Program to deliver incremental savings of $80-$90 million in 2022 and additional savings of $250 million by 2023.
Concerns
Image Source: Zacks Investment Research
Shares of Mattel have declined 19.3% in the past year compared with the industry’s 8.7% fall. The downside was mainly caused by inflationary pressures, supply chain challenges and COVID-19-related disruptions, including temporary business closures, reduced retail traffic and local restrictions. In China, the company’s sales were affected by COVID-related retail closures during the third quarter of 2022. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.
Mattel has been continuously incurring increased expenses, which have been detrimental to margins. During the third quarter of 2022, the cost of sales increased 5% year over year. The increase in the cost of sales was driven by higher product and other costs, higher royalty expenses, and higher outbound freight and logistics expenses. Gross margin in the third quarter of 2022 declined because of cost inflation, primarily in raw materials, ocean freight, and other supply chain costs, and unfavorable foreign exchange. However, this was largely offset by favorable pricing actions and incremental realized savings from the Optimizing for Growth program. The company anticipates the challenging macroeconomic environment to persist for some time.
Zacks Rank & Key Picks
Mattel currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Hilton Grand Vacations Inc. (HGV - Free Report) , RCI Hospitality Holdings, Inc. (RICK - Free Report) and Hyatt Hotels Corporation (H - Free Report) .
Hilton Grand Vacations currently has a Zacks Rank #1. HGV has a trailing four-quarter earnings surprise of 3.7%, on average. The stock has declined 25.6% in the past year.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates a rise of 4.7% and 24.6%, respectively, from the year-ago period’s levels.
RCI Hospitality currently has a Zacks Rank #2 (Buy). RICK has a trailing four-quarter earnings surprise of 6.1%, on average. The stock has gained 26.6% in the past year.
The Zacks Consensus Estimate for RICK’s 2023 sales and EPS indicates growth of 12.7% and 10.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has declined 5.1% in the past year.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates a surge of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.