Good Tidings Await This Toy Company

Toy giant Mattel's (NASDAQ: MAT  )  recent third-quarter report featured year-over-year quarterly sales growth of 6% to $2.21 billion and a 16% profit increase. Will the upcoming holiday season deliver more good tidings?   

Thriving brands meet new launches
Worldwide sales for the Girls & Boys Brands segment were up 8% to $1.48 billion, largely due to a 20% sales jump for the American Girl product line. American Girl's $122.3 million accounted for nearly 6% of the company's total sales. 

What else scored a win in the third quarter?

  • Other Girls Brands were up 28% thanks to strong sales for the Monster High line. 
  • Entertainment segment was up 7% mostly due to tie-in products with Disney's summer film Planes
  • Barbie products scored a 3% increase, improving upon the 21% drop in the second quarter.
  • Fisher-Price was flat on the year, but still brought in $789.3 million thanks to the power of Thomas the Tank Engine. 
The strength of female-oriented toys was counterbalanced by the 9% decline in the Wheels segment, which includes Hot Wheels and Matchbox products. That also explains why the new toy launches are primarily geared toward girls.    

Ever After High Royal Doll. Source: Mattel.

Monster High products will gain the sister line of Ever After High, which focuses on fairytale characters. Mattel will further expand its Disney collaboration with two new tie-in lines as well. The television series Sofia the First, which launched early this year, and the forthcoming movie Frozen will introduce three new female characters to the successful Disney Princess line.

Big-box boost  
The holiday season spells big business for toy companies -- and for the big-box retailers that stock their products. With consumer confidence still shaky, however, the stores will carefully choose inventory based around top sellers. The stores are offering a hint at those potential top sellers with their holiday toy lists. 

Wal-Mart unveiled its top toy list in September. Mattel products that made the list included a Barbie Dreamhouse, two Fisher-Price products, a remote-controlled character from Planes, and a Sophia the First doll. 

The "Fabulous 15" from Toys R Us includes an $80 Sophia the First talking vanity and two Ever After High dolls. Target's recommendations include dolls from Monster High and tie-in products for Frozen and Planes.

Retailers push the toys to get customers through the door for other products. Last year's competitive landscape also included a battle of the layaway plans. The stores might offer better incentives this year, however, since last year's fourth quarter included a 1% comparable-store sales increase for Wal-Mart and a 0.4% rise for Target.  

Battling Hasbro 
Hasbro (NASDAQ: HAS  ) makes fewer appearances on the holiday toy lists than Mattel and leans heavily toward two segments that underperformed in the third quarter. The company is currently undergoing a $100 million cost-savings initiative meant to wrap up in 2015.

Hasbro's third-quarter net revenues were up 2% to $1.37 billion primarily due to strong overseas growth. Girls toys was also Hasbro's strongest segment, with 29% growth. Products include My Little Pony, Furby, and Nerf. Recent launches include the My Little Pony spinoff Equestria Girls line and the Nerf Rebelle bow and arrow. 

Games saw a modest growth of 6% based on sales of Magic: The Gathering, Jenga, and the newly launched Telepods app game system. Boys and preschool segments saw declines of 17% and 2%, respectively.

Some Hasbro products also made the holiday toy lists. Wal-Mart's mostly featured preschool or boy-targeted toys such as the Baby Alive Doll or the Nerf N-Strike Elite Rapidstrike. Two exceptions were the Nerf Rebelle and a Furby.

Toys R Us featured preschool toys including Elmo and a FurReal Friends monkey. Target's larger list echos the others and adds on Marvel and Justice League toys.

Foolish final thoughts 
The fourth quarter carries great significance for toy companies, and a strong performance could solely drive investment decisions. Mattel has a better position than Hasbro going into the holiday season. The company has more toys on the holiday lists, and those toys also target the strong-selling girls demographic. Hasbro's entries are tilted toward boys and preschoolers, two segments that underperformed this quarter.     

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