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Mattel (MAT) Rides on Solid Hot Wheels Demand Amid High Costs
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Mattel, Inc. (MAT - Free Report) is benefiting from solid contributions from the Hot Wheels brand and cost-saving initiatives. Increased focus on core brands and an expanding product portfolio bode well for the company.
Shares of MAT have risen 9.5% in the past three months, outperforming the Zacks Toys - Games - Hobbies industry’s growth of 8.8%.
However, this toy manufacturing company’s growth is impeded by inflationary pressure and the dismal performance of the North America segment.
Image Source: Zacks Investment Research
Let us discuss the factors broadly.
Factors Favoring MAT
Mattel’s Hot Wheels brand continues to impress investors with its growing performance trend. During the first quarter of 2023, gross billings at the Hot Wheels brand rose 1% (on a reported basis) and 2% (at constant currency “cc”) year over year. The company has been witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects.
Using its Optimizing for Growth program, Mattel remains focused on achieving cumulative cost savings and enhancing its margins. The company is simplifying its organization structure and optimizing processes and supply chain to generate savings across operations. The program contributed $106 million of incremental savings in cost of goods in 2022. Mattel anticipates the program to deliver incremental savings of $96 million and additional savings of $300 million by 2023.
Mattel remains well positioned for growth, given a strong product lineup, which includes core brands, licensed brands and lucrative product associations. In January 2022, the company entered into a multi-year global licensing agreement with Disney to develop and market the latter’s Princess and Frozen branded line of products. Built upon its existing licensing arrangement with Disney for Pixar Animation Studio’s Toy Story and Cars franchises as well as for Lightyear, the company anticipates launching the new products starting in 2023. Also, the return of Disney Princess and Frozen to Mattel’s portfolio is likely to boost strength and act as a growth driver in the upcoming periods.
Factors Impeding Growth
Mattel is consistently facing pressure from increasing economic inflation, which is, in turn, affecting its margins and growth prospects. In first-quarter 2023, the adjusted gross margin contracted 660 basis points year over year to 40%. The downside was mainly caused by inventory management efforts, including higher close-out sales and inventory obsolescence expense, cost inflation and unfavorable fixed cost absorption. The challenging environment is likely to persist for some time.
Also, the North America segment performed unimpressively, affecting the company’s growth trend. In first-quarter 2023, gross billings declined 27% (as reported and at constant currency) year over year. Per our model, net sales and gross billings of North America segment in 2023 are likely to decline 2.4% and 3.4%, respectively, year over year.
Royal Caribbean Cruises presently sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 26.4%, on average. The stock has surged 92.8% in the year-to-date period.
The Zacks Consensus Estimate for RCL’s 2023 sales and earnings per share (EPS) indicates a rise of 48.5% and 162.5%, respectively, from the year-ago period’s levels.
Skechers currently sports a Zacks Rank #1. SKX delivered a trailing four-quarter earnings surprise of 18.8%, on average. Shares of the company have increased 23.4% in the year-to-date period.
The Zacks Consensus Estimate for SKX’s 2023 sales and EPS indicates a rise of 7.7% and 31.5%, respectively, from the year-ago period’s levels.
Marriott currently sports a Zacks Rank #1. MAR has a trailing four-quarter earnings surprise of 8%, on average. Shares of the company have increased 18.4% in the year-to-date period.
The Zacks Consensus Estimate for MAR’s 2023 sales and EPS indicates a rise of 12.9% and 25.4%, respectively, from the year-ago period’s levels.
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Mattel (MAT) Rides on Solid Hot Wheels Demand Amid High Costs
Mattel, Inc. (MAT - Free Report) is benefiting from solid contributions from the Hot Wheels brand and cost-saving initiatives. Increased focus on core brands and an expanding product portfolio bode well for the company.
Shares of MAT have risen 9.5% in the past three months, outperforming the Zacks Toys - Games - Hobbies industry’s growth of 8.8%.
However, this toy manufacturing company’s growth is impeded by inflationary pressure and the dismal performance of the North America segment.
Image Source: Zacks Investment Research
Let us discuss the factors broadly.
Factors Favoring MAT
Mattel’s Hot Wheels brand continues to impress investors with its growing performance trend. During the first quarter of 2023, gross billings at the Hot Wheels brand rose 1% (on a reported basis) and 2% (at constant currency “cc”) year over year. The company has been witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects.
Using its Optimizing for Growth program, Mattel remains focused on achieving cumulative cost savings and enhancing its margins. The company is simplifying its organization structure and optimizing processes and supply chain to generate savings across operations. The program contributed $106 million of incremental savings in cost of goods in 2022. Mattel anticipates the program to deliver incremental savings of $96 million and additional savings of $300 million by 2023.
Mattel remains well positioned for growth, given a strong product lineup, which includes core brands, licensed brands and lucrative product associations. In January 2022, the company entered into a multi-year global licensing agreement with Disney to develop and market the latter’s Princess and Frozen branded line of products. Built upon its existing licensing arrangement with Disney for Pixar Animation Studio’s Toy Story and Cars franchises as well as for Lightyear, the company anticipates launching the new products starting in 2023. Also, the return of Disney Princess and Frozen to Mattel’s portfolio is likely to boost strength and act as a growth driver in the upcoming periods.
Factors Impeding Growth
Mattel is consistently facing pressure from increasing economic inflation, which is, in turn, affecting its margins and growth prospects. In first-quarter 2023, the adjusted gross margin contracted 660 basis points year over year to 40%. The downside was mainly caused by inventory management efforts, including higher close-out sales and inventory obsolescence expense, cost inflation and unfavorable fixed cost absorption. The challenging environment is likely to persist for some time.
Also, the North America segment performed unimpressively, affecting the company’s growth trend. In first-quarter 2023, gross billings declined 27% (as reported and at constant currency) year over year. Per our model, net sales and gross billings of North America segment in 2023 are likely to decline 2.4% and 3.4%, respectively, year over year.
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 top-ranked stocks from the Zacks Consumer Discretionary sector are Royal Caribbean Cruises Ltd. (RCL - Free Report) , Skechers U.S.A., Inc. (SKX - Free Report) and Marriott International, Inc. (MAR - Free Report) .
Royal Caribbean Cruises presently sports a Zacks Rank #1. RCL has a trailing four-quarter earnings surprise of 26.4%, on average. The stock has surged 92.8% in the year-to-date period.
The Zacks Consensus Estimate for RCL’s 2023 sales and earnings per share (EPS) indicates a rise of 48.5% and 162.5%, respectively, from the year-ago period’s levels.
Skechers currently sports a Zacks Rank #1. SKX delivered a trailing four-quarter earnings surprise of 18.8%, on average. Shares of the company have increased 23.4% in the year-to-date period.
The Zacks Consensus Estimate for SKX’s 2023 sales and EPS indicates a rise of 7.7% and 31.5%, respectively, from the year-ago period’s levels.
Marriott currently sports a Zacks Rank #1. MAR has a trailing four-quarter earnings surprise of 8%, on average. Shares of the company have increased 18.4% in the year-to-date period.
The Zacks Consensus Estimate for MAR’s 2023 sales and EPS indicates a rise of 12.9% and 25.4%, respectively, from the year-ago period’s levels.