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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 benefiting from robust e-commerce growth, highly efficient supply chain and strong demand for its products. Year to date, the company’s shares have gained 17.1%, against the industry’s decline of 0.6%. However, high debt remains a major concern.

What’s Driving the Performance?

The company continues to benefit from cost saving program. Through its current cost-saving program, Mattel remains focused on achieving cumulative cost savings, thus, enhancing margins. Basically, the company is simplifying its organization structure, optimizing processes and supply chain to generate savings across operations. In fact, Mattel had achieved structural simplification run-rate savings of $875 million in 2019, which exceeded its target of $650 million. In 2020, it achieved cost savings of $1 billion, primarily driven by Structural Simplification and Capital Light Cost Saving Programs.
During fourth-quarter 2020, the company initiated a new multi-year program — Optimizing for Growth. Notably, this program and the integration of Capital Light Program are likely to deliver an additional $250 million of savings by 2023. Also, the company is raising the estimated cost savings for 2021 from $75 million to a range of $80 million to $90 million.

Moreover, Barbie brand continues to impress investors with solid performance. In the first quarter 2021, Barbie brand’s worldwide gross billings witnessed an improvement of 87% on a reported basis and 86% on a constant-currency basis. Notably, Barbie point of sales increased 66%. The upside can primarily be attributed to design led innovation, cultural relevance, executional excellence and customers’ positive response to the brand. Per NPD, Barbie strengthened its position as the number one Global Doll brand in the first quarter of 2021. Going forward, the brand has new fashion segments like Barbie EXTRA and Ken Turned 60 in its pipeline. It recently planned to develop Barbie Fashion Battle, a reality show where designers compete for the chance to create a fashion collection for Barbie. This along with increased focus on new content and digital engagement is likely to drive growth in the upcoming quarters. The company’s latest animated movie, Barbie & Chelsea the Lost Birthday, made a very strong debut in the United States and Canada on Netflix.

The company witnessed strong Hot Wheels sales in the first quarter of 2021. Notably, gross sales at the Hot Wheels brand climbed 16%, both on a reported basis and on a constant-currency basis. Moreover, Hot Wheels POS were up double digits in the quarter. The company has been witnessing improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospect. Hot Wheels continued to be the number one vehicles property globally in the first quarter of 2021, driven by very positive reaction from its customer.

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What’s Hurting the Stock?

Maintaining liquidity during the pandemic has become a herculean task for most of the companies.  As of Mar 31, 2021, the company’s cash and equivalents were $615.2 million compared with $762.2 million as of Dec 31, 2020. Meanwhile, long-term debt during the quarter amounted to $2.8 billion debt (almost flat sequentially). However, the company’s interest earned ratio is at 2 compared with 1.9 in the prior quarter.

Moreover, coronavirus pandemic might hurt the company’s performance. By the end of the first quarter, nearly 4% of all retail outlets that sell the company’s products, which represent nearly 6% of its revenue base, were closed due to the pandemic.

Mattel, which shares space with Hasbro, Inc. (HAS - Free Report) , Take-Two Interactive Software, Inc. (TTWO - Free Report) and Activision Blizzard, Inc. (ATVI - Free Report) , carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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