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Mattel (MAT) Stock Up on Narrower-than-Expected Q2 Loss

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Shares of Mattel Inc. (MAT - Free Report) rallied nearly 3.5% in afterhours trading on Jul 20, after the company posted narrower-than-expected loss for the second quarter of 2016.

Earnings & Revenue Discussion

Mattel’s adjusted loss per share of 2 cents was narrower than the Zacks Consensus Estimate of a loss of 6 cents. However, the figure compared unfavorably with the year-ago quarter earnings of a penny per share on account of lower sales. Notably, adjusted loss excludes severance and restructuring expenses.

Mattel Inc. (MAT - Free Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Revenues of $957.3 million slipped 1% year over year in constant currency but beat the consensus mark of $940 million by 1.8%. Sales declined 3% year over year, including the impact of foreign currency.

Quarter Highlights

Gross sales fell 4% year over year due to a decline at Mattel Girls & Boys Brands and American Girl Brands. At constant currency, gross sales were down 1%.

Gross sales in North America (including the U.S., Canada and American Girl) were up 1%, while that in the International region tumbled 9% mainly due to currency headwinds. Meanwhile, on a constant currency basis, gross sales in North America inched up 1% while the same fell 3% year over year in the International region.

Notably, gross margin in the reported quarter decreased 260 bps to 45.3% from 47.9% recorded in the year-ago quarter, largely due to currency headwinds.

Meanwhile, adjusted operating income for the quarter was $6.2 million, lower than the prior-year quarter figure of $18.8 million due to lower revenues.

Segment Details

The company reports results under four segments, namely, Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

At constant currency, worldwide gross sales at Mattel Girls & Boys Brands declined 5% to $553.7 million year over year on the back of a 57% plunge in the Other Girls brand. However, a 24% surge in Barbie sales, 8% increase in the Wheels category and 21% growth in the Entertainment business, in constant currency, somewhat offset the losses.

Gross sales at Fisher-Price Brands, which includes Fisher-Price Core, Fisher-Price Friends and Power Wheels, climbed 6% year over year to $346.3 million at constant currency.

Gross sales at American Girl Brands were $68.1 million, down 19% from the year-ago quarter on a constant currency basis.

Gross sales at Construction and Arts & Crafts Brands, which includes the Mega Bloks and RoseArt brands, were $72.3 million, up 22% from second-quarter 2015 at constant currency.

MATTEL INC Price, Consensus and EPS Surprise

MATTEL INC Price, Consensus and EPS Surprise | MATTEL INC Quote

Third-Quarter 2016 Guidance

In the third quarter, Mattel expects gross margin rate to be up roughly 300 basis points sequentially. Notably, seasonal increase in revenues versus second quarter, less steep headwinds from foreign exchange, somewhat better mix and incremental supply chain and other cost savings initiatives are likely to drive the upside.

2016 Guidance

Mattel expects net sales growth to be more or less flat in 2016, on a constant currency basis. Meanwhile, for full-year 2016, the company expects the negative impact of foreign exchange on net sales to be 2% to 4%.
 
Notably, for the second half of the year, management expects the impact of foreign exchange to lessen. However, Mattel expects to fall short of its 2016 gross margin expectations of nearly 50%. This is because forex headwinds and negative mix impact are likely to more than offset benefits from strategic pricing, supply chain efficiencies, and cost savings initiatives.

Meanwhile, the company continues to expect adjusted SG&A expenses to decline by $55—$65 million in 2016. The company anticipates continuing cost savings to mitigate overhead expenses from the Fuhu and Sproutling acquisitions.

Zacks Rank & Stocks to Consider

Mattel presently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader consumer discretionary sector include Boyd Gaming Corporation (BYD - Free Report) , Melco Crown Entertainment Limited and MGM Resorts International (MGM - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).

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