Mattel's First-Quarter Showed Improvement: Should You Play?

Source: Mattel

Mattel (NASDAQ: MAT  ) shares dipped slightly Thursday following the toy maker's first-quarter report. Shares have dropped nearly 20% year-to-date due to poor 2013 sales for three core brands. And fierce competition from the likes of Hasbro (NASDAQ: HAS  ) means that trend could continue. Did the first-quarter earnings report look brighter for Mattel?   

Analysts had estimated revenue of $947 million and EPS of $0.07. Mattel reported a loss per share of $0.03 and $946.2 million in revenue. This marks the second straight quarter Mattel has missed both revenue and EPS estimates.

But the earnings misses wouldn't prove as important if the overall business showed better signs of health. Meaning, did the core brands improve in the first quarter? 

Barbie slides, Other Girl Brands weakens
Three core brands showed improvement this quarter. Hot Wheels worldwide gross sales grew 2% year-over-year compared to an 8% drop in the fourth quarter. Preschool line Fisher Price lowered its losses. And American Girl dolls showed a slight improvement over the fourth but the growth was still quite low compared to that segment's historic performance.

Brands

1Q13

2Q13

3Q13

4Q13

1Q14

Barbie

(2%)

(12%)

3%

(13%)

(14%)

Hot Wheels

(3%)

(1%)

(2%)

(8%)

2%

Fisher Price

(7%)

(3%)

0%

(13%)

(6%)

American Girl

32%

14%

20%

3%

5%

Other Girl Brands

56%

23%

28%

12%

4%

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

Barbie continued with another double-digit drop. Mattel amped up its Barbe PR efforts recently with an odd Sports Illustration swimsuit edition collaboration. That probably won't amount to any sales growth since it's not as if people had forgotten Barbie existed. The target market has turned away from the brand for some reason-possibly due to cannibalization from Mattel's other dolls.

But it's the drop in the Other Girl Brands segment that's most concerning. Mattel doesn't technically count this as a core brand-since it's a rather vague segment title- but this has proven to have the best year-over-year growth potential. But the wind is coming out of that sail. 

The first quarter press release stated that Other Girl Brands was "primarily driven by Disney Princess and Ever After High, partially offset by Monster High." So Monster High dolls, which have previously driven this segment, underperformed enough to pull down the final total. But that also suggests that the Disney Princess and Ever After High sales of the leading products were weaker than in the past.

Will Hasbro turn up better results?
Hasbro will report earnings on Monday. Analysts expect revenue of $690 million with EPS of $0.11. Hasbro has met or beat revenue estimates for four of the past five quarters and EPS estimates for three of those quarters.

But Hasbro has its own performance problems with a 16% fourth-quarter sales drop in the Boys segment. But Hasbro seems at a slight advantage over Mattel overall as it has fewer segments performing badly.

Foolish final thoughts
Mattel didn't miss revenue estimates by much but the loss per share was a blow. While it's good that three segments showed improvements, Barbie still hasn't found her legs and the deflation of Other Girl Brands is concerning. The company did increase its dividend to $0.38 per share, which represents 6% year-over-year growth in the annual dividend amount. But I wouldn't consider that dividend worth the continued risks. 

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