Mattel, Inc. (MAT - Free Report) is gaining momentum on solid sales-boosting initiatives, robust Barbie sales and cost control efforts. These efforts have helped the company to turnaround its business post the Toys “R” Us liquidation.
Notably, shares of Mattel rebounded from a sharp decline of 37.4% in the past two years to 11.8% gain in the past three months. The stock has also outperformed the industry’s increase of 1.1% in the same period. However, stiff competition, and high advertising and promotion expenses still remain a concern. Let’s delve deeper.
Given a strong product line-up that includes core brands, licensed brands and lucrative product associations, Mattel seems to be well-positioned for growth. Owing to its popularity among young boys and girls, the company’s premier brand like Hot Wheels has been the category leader in multiple product segments for several years. Mattel has also forayed into other consumer product categories such as apparel, fashion and accessories to build the brands.
On the digital front, 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.
Backed by these aforementioned efforts, Mattel delivered robust sales growth. A declining top-line trend, which has been affecting Mattel for quite some time, came to a halt after the company witnessed sales growth in second-quarter 2019. The trend continued in the third quarter of 2019 as well. In the third quarter, net sales of $1,481.6 million surpassed the consensus mark of $1,421 million and improved 3% year over year. On a constant-currency basis, sales improved 4% from the prior-year quarter. The company also witnessed sales growth across most of its categories and operating regions. Various initiatives like product innovation, marketing partnerships, promotional initiatives and digital efforts also yielded results.
Mattel is also focusing on cost-saving efforts to boost its bottom line. Through its current cost-saving program, the company remains focused on achieving cumulative cost savings, thus expanding margins. Basically, the company is simplifying its organization structure, optimizing processes and supply chain to generate savings across operations. In the first nine months of 2019, Mattel already achieved $826 million of structural simplification run-rate savings, which exceeds its target of $650 million. The company also expects to exceed the target of $854 million by the end of 2019.
Intense competition from a broad array of alternative modes of entertainment including video games, MP3 players, tablets, smartphones and other electronic devices is a pressing concern.
Moreover, Mattel has been focusing on advertising, marketing and promotional activities to improve POS momentum and drive sales. Such activities are resulting in high expenses. In third-quarter 2019, advertising and promotion expenses increased 3% from the year-ago quarter.
Zacks Rank & Key Pick
Mattel, which shares space with Hasbro (HAS - Free Report) and Electronic Arts (EA - Free Report) , currently carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the same space is JAKKS Pacific, Inc. (JAKK - Free Report) , which sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
JAKKS Pacific’s bottom line is likely to witness a growth of 54.1% in the current quarter.
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