Will Mattel Have a Doll of a First Quarter?

Mattel ended 2013 with three weak core franchises. Will 2014 start better -- or should Mattel step aside for Hasbro's rise?

Apr 15, 2014 at 10:15AM

Mattel (NASDAQ:MAT) will report first-quarter results on Thursday April 17. The toy company's shares had dropped 13% before the end of March following a drop in two of its core brands. Will sales look better this quarter, or will Mattel fall far behind main competitor Hasbro (NASDAQ:HAS)

Barbie Teacher

Source: Mattel

Barbie, Hot Wheels, and Fisher-Price had negative year-over-year growth for most of 2013. The company also recently paid about $460 million for the acquisition of Mega Brands in order to market its own version of the wildly popular cultural phenomenon Legos. Mattel has a few core brands still showing strength, but it's still vital that the flailing brands show improvement. 

What should investors watch in Mattel's first-quarter report? 

Can Barbie sit pretty? 
Worldwide gross sales of Barbie dropped 13% in the fourth quarter and Mattel ramped up its public relations efforts concerning the doll. The company created the hashtag "unapologetic" partly as a response to some criticisms about Barbie's unrealistic proportions, even though those have existed for decades and haven't banished the doll from playrooms. But the hashtag was also used as a tie-in for an odd media appearance for Barbie: the Sports Illustrated Swimsuit Edition. 

Barbie sales did have a rough time last year. Fellow core brands Hot Wheels and Fisher-Price didn't fare much better, either. The company's key assets now are the American Girl doll line and the products herded together under the heading of Other Girl Brands.  

 Brand

1Q13

2Q13

3Q13

4Q13

FY13

Barbie

(2%)

(12%)

3%

(13%)

(6%)

Hot Wheels

(3%)

(1%)

(2%)

(8%)

(4%)

Fisher Price

(7%)

(3%)

0%

(13%)

(6%)

American Girl

32%

14%

20%

3%

11%

Other Girl Brands

56%

23%

28%

12%

25%

Worldwide gross sales growth, year over year Source: Company filings.

Monster High and Disney Princess products tend to lead the Other Girl Brands segment to victory. The edgy nature of the Monster High dolls has likely cannibalized from the Barbie segment as well. 

Can Mattel's products grow more than Hasbro's? 
It's hard to compare Mattel and Hasbro head-to-head because Hasbro breaks its product sales into broader categories that make the overall results look rosier; add Barbie's losses to American Girl and Other Girl Brands and Mattel's performance would look much better. The two companies share a weakness in the sale of boy-targeted products, though. 

 Category

1Q13

2Q13

3Q13

4Q13

FY13

Boys

(20%)

(35%)

(17%)

(16%)

(22%)

Games

26%

19%

6%

2%

10%

Girls

23%

43%

29%

19%

26%

Preschool

8%

4%

(2%)

(1%)

1%

Worldwide net revenue growth, year over year. Source: Company filings. 

The Boys segment saw strong performances last year from Transformers and Nerf, but the gains couldn't offset the losses from Marvel and Beyblade products. Games grew for five straight quarters thanks in part to Magic: The Gathering and Monopoly. Meanwhile, the Girls segment included hot holiday toys including Furby, Nerf Rebelle, and the My Little Pony spinoff Equestria Girls. 

Estimates and year-over-year results to beat
Analysts' estimates for Mattel target $947 million in revenue and EPS of $0.07. The company missed revenue estimates in the fourth quarter and missed EPS estimates in three of the past five quarters. Current-quarter performance is always compared to the same period in the previous year. Mattel's first quarter in 2013 featured revenue of $996 million and EPS of $0.11. 

Hasbro is expected to report first-quarter results on April 21. Analysts estimate revenue of $687 million with EPS of $0.11. Hasbro has met or beat revenue estimates for four of the past five quarters and missed EPS estimates for two of those quarters.

Foolish final thoughts 
Mattel is besting Hasbro in revenue, but both companies have segment sales issues, particularly in products aimed at boys. Improvement in the weak core franchises will prove vital for Mattel's performance in 2014. 

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Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Hasbro, Mattel, and Walt Disney. 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.

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