Why Shares of Mattel Dropped Today

The toy company has a new strategy and a much lower dividend.

Timothy Green
Timothy Green
Jun 15, 2017 at 1:44PM
Consumer Goods

What happened

Shares of Mattel (NASDAQ:MAT) fell on Thursday following the toymaker's investor day event. Mattel laid out its strategy, talking up a renewed focus on digital, as well as emerging markets. But the company also slashed its dividend, and an analyst cut her price target on the stock. As of 1:33 p.m. EDT, Mattel stock was down 7.9%.

So what

Mattel began its investor day event by pointing out its previous mistakes. The company cited brand franchise management missteps, too much focus on the short term, limited portfolio planning, and cost-cutting without simplification as the key issues facing the company.

A Barbie Dreamhouse.

Image source: Mattel.

Mattel sees emerging markets as a major opportunity. While the toy industry is expected to grow globally by 5.4% annually through 2021, in emerging markets it's expected to grow by 7.5% annually. Digital and mobile technology is another area Mattel sees opportunity. The company plans to turn its biggest brands into "connected play experiences," spanning consumer products, gaming, content, and live experiences.

In order to make the investments necessary to implement this strategy, Mattel announced it was slashing its dividend. Mattel's new quarterly dividend is just $0.15 per share, down from a previous dividend of $0.38 per share. The company is targeting a payout ratio between 50% and 60% as it invests in its business. Based on the new dividend, Mattel stock yields just under 3%.

Now what

The dividend cut was bad (if not completely unexpected) news for investors. An analyst with D.A. Davidson saw other problems as well. A lack of specifics on how Mattel would implement its strategy was a big concern, as was weak performance from two brands, Thomas & Friends and Mega Blok. The analyst lowered her price target on Mattel stock to $24, down from a previous target of $30.

Shares of Mattel are now down 56% since the start of 2014. Revenue and profits have tumbled, and Mattel's digital and mobile push may take years to show results. This strategy shift comes a few months after CEO Margaret Georgiadis took the helm, but investors don't appear confident that this plan will succeed.