This Toy Maker Is Not a Good Investment

A lackluster quarter and increasing competitive pressure make this company look unattractive.

Mar 3, 2014 at 11:53AM

Although consumer spending in the U.S. increased 0.4% for the month of December, the consumer sentiment index does not show the same trend. The index dropped to 81.2 for the month of January from 82.5 in December. Hence, consumer confidence has actually gone down, which is worrying for companies across the retail spectrum.

Toy maker Mattel (NASDAQ:MAT) also witnessed this weakness in consumer confidence when it posted its fourth-quarter results. The numbers were far below the Street's estimates, which led to a sharp fall in the stock price.

Mattel's disheartening numbers
Revenue stood at $2.1 billion, a plunge of 6.3% from last year's quarter. This was far below the estimate of $2.37 billion. Factors such as weather, which affected demand for outdoor games, and lower store traffic dented Mattel's sales. Moreover, there were fewer new toys released, especially ones which were based on children's movies.

According to the NPD Group, the sales of pre-school and infant toys have declined 4% and 6%, respectively, for 2013. One of the reasons for this decline was the growing popularity of interactive toys. In fact, the youth electronics category grew 18% as demand for tablets and other electronic devices increased. Hence, sales of Barbie dolls and other toys decreased.

Although Mattel's bottom line jumped 23% to $1.07 per share, this was far below the estimate of $1.19 per share. This was mainly because of Mattel's lower top line, which led to lower earnings. The toy maker's efforts were not up to the mark, which hampered its sales. First, the company made little effort toward product innovation, unlike the previous year when games such as Hot Wheels cars' new models (based on Angry Birds), and Fijit attracted more customers. Additionally, lower in-store promotional activities led to weak sales.

Mattel stacked against peers...
Although the company posted a lackluster quarter, it has significantly outpaced peers such as Hasbro (NASDAQ:HAS) and JAKKS Pacific (NASDAQ:JAKK) in terms of stock price appreciation.

MAT Chart

MAT data by YCharts

With a return of 200% to its investors, Mattel clearly outpaced the other two players, Hasbro and Jakks Pacific. With some of the leading toy brands such as Barbie and American Girl, Mattel has been able to lure customers. In fact, research results from NPD Group show that out of 50 top toys in the U.S, 12 were those of Mattel in 2013.

Mattel's peers are also trying to overcome competitive pressures by broadening their product portfolios and expanding their businesses. For example, JAKKS Pacific acquired Maui, an Ohio-based manufacturer of outdoor toys, in July 2012. The acquisition expanded JAKKS' portfolio of non-licensed products and diversified its distribution capabilities. Also, the company plans to expand the product line in the international market. The buyout of Maui came in addition to the company's acquisition of Moose Mountain Toymakers in October 2011. By acquiring the sports products manufacturer, JAKKS Pacific expanded its product mix, thereby allowing it to offer a wide variety of items to its customers.

Similarly, Hasbro is also gearing up with its recent acquisition of Backflip Studios. Backflip, the developer of some of the most popular mobile games for Android devices, will enhance Hasbro's digital gaming expertise. With the growing importance of mobile gaming, this acquisition definitely looks like a smart move from Hasbro's side. It will be interesting to see how Hasbro fares with this acquisition, as it could provide stiff competition to Mattel and other players in the industry. Additionally, Hasbro plans to roll out a number of new games in the first quarter of 2014 which should help the company boost its top line.

Looking ahead
Although its marketing and product innovation efforts were not up to the mark during the fourth quarter, Mattel plans to enhance its efforts in the current quarter. In fact, its marketing strategy for the American Girl brand worked well during the quarter, which is evident from its sales growth of 3% over last year.

Also, Mattel released two new video games during the quarter, which should start bearing fruit in the coming months. On top of that, the company has been trying to expand its retail footprint in the U.S. as well as the international markets, which should help in its growth.

Final views
Mattel is having a tough time and it has been unable to attract customers to its products, which has led to poor sales. Also, lack of product innovation is hurting the company. Hence, the toy maker needs to be more focused on the innovation and marketing. Competitive pressures from companies such as Hasbro might hamper Mattel's sales further. Although Mattel is trying to win back lost customers, it is prudent to wait until the company shows clear signs of recovery.

There's no need to wait on these companies
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Pratik Thacker has no position in any stocks mentioned. The Motley Fool recommends Hasbro and Mattel. The Motley Fool owns shares of Hasbro and Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers