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Mattel Inc. Stumbles as Investors Put Their Faith in New CEO

By Motley Fool Staff - Apr 26, 2017 at 6:21AM

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Shares of the toymaker dropped to a new 52-week low in the wake of a rough holiday season.

In this segment from Motley Fool Money, Chris Hill and Jason Moser unwrap Mattel's (MAT -1.16%) first quarter report to find a lump of coal. The company's heavy post-holiday discounting (following a weak holiday season) significantly hurt profits. The company's new CEO has a lot of work cut out for her, as Mattel's legacy brands have gone stale. 

A full transcript follows the video.

This video was recorded on April 21, 2017.

Chris Hill: Shares of Mattel hitting their lowest point in over a year after a first quarter loss that was much worse than expected. Jason, they had a bad holiday quarter, and they did so much discounting after the holidays, that's what showed up in this report.

Jason Moser: That's right. It's really hard to get worked up for this business these days. Mattel is just very much a company in crisis. I think new leadership and Margo Georgiadis was sorely needed, but I'm afraid she's not the answer alone. I think Mattel is facing a bigger crisis in some of the brands that they have in their portfolio, some of the brands that have really been responsible for so much of the strength of the company in past years -- American Girl dolls, Monster High, those are franchises that are now turning on them and really becoming sort of a drag on the company's performance.

We talked about this before with Mattel and Hasbro. Really, the key for these businesses is figuring out a way to hitch to the bigger players out there that have the IP, like Disney, for example. That's the easiest example. We talked about Hasbro striking gold with that new princesses deal, and I think that's going to pay off for years and years to come. Conversely, when we look at Mattel's conference call, they're talking about this big release for Cars 3 next quarter. I'm sorry, Cars 3 is a pretty successful franchise, but it doesn't hold a candle to princesses and Star Wars. What Mattel is realizing now is underinvesting in the business and chasing some of those opportunities is really going to hamper them for some time to come.

To your point about inventory, gross margin fell almost seven full percentage points this quarter because of that glut of inventory they had to unload after the holiday season at rock bottom prices. That's just Retail 101 right there -- when you see retailers doing that, those are red flags, and Mattel is full of them.

Hill: Yeah. Although, Georgiadis, she's been CEO for about an hour and a half. You have to give her a little bit of time.

Moser: Right. I think we've talked about that before on Market Foolery, maybe. You really have to give her a year to get this plan established and to see if the company can actually gain some traction with it. But, man, I tell you, she has her work cut out for her.

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