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How Mattel Stock Reacted to Third-Quarter Results

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Stock down 2.8%

Mattel (MAT) reported its third-quarter results on October 25, and the stock fell 2.8% on October 26. It missed both its top- and bottom-line estimates, and sales fell 8% YoY (year-over-year).

The Toys “R” Us liquidation along with soft business trends in China negatively impacted Mattel’s sales growth. Weaknesses in Toy Box, American Girl, Fisher-Price, and Thomas & Friends compounded its troubles.

Mattel’s YTD (year-to-date) losses as of October 26 were 12.5%. Hasbro (HAS), Jakks Pacific (JAKK), and Take-Two Interactive Software (TTWO), other toymaker stocks, have risen 2%, 3.4%, and 9.4%, respectively, YTD.

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Major takeaways

There were two key positives to take away from Mattel’s third-quarter results. Net North American sales increased 4%, driven by strength in Barbie and Jurassic World. Due to its cost-cutting plan, operating income surged 41% YoY.

The Toys “R” Us liquidation could continue to impact its sales in the fourth quarter, but the effect is likely to wane by next year, according to Mattel’s CEO Ynon Kreiz on the conference call.

Mattel remains positive about growth in China over the long term and expects its partnerships with Alibaba, Fosun, and NetEase to drive growth in the region. For Europe, Mattel is working on developing relations with retailers as well as improving its digital platform to capture market share.

Analysts’ actions after Q3 2018 

There have been two price revisions for Mattel since its third-quarter earnings release. On October 26, Jefferies and D.A. Davidson lowered their price targets to $13 from $14.

Currently, analysts’ 12-month average target price for MAT stock is $14.92, which reflects a 10.9% downside to its price on October 26.

Since Mattel’s latest earnings announcement, most analysts have rated it a “hold.” Of the 16 analysts covering the stock, 75% have rated it a “hold,” and 19% have rated it a “buy.”

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