What happened 

Shares of Mattel (NASDAQ:MAT) were heading lower Thursday, a day after Hasbro (NASDAQ:HAS), the toy maker's chief rival, posted disappointing holiday-quarter results and its CEO deflected questions about a potential merger between the two companies. The broader market sell-off also seemed to weigh on the stock. 

As a result, Mattel stock was down 6% as of 12:08 p.m., and Hasbro was off 4.6%.

The Barbie Dreamhouse

Image source: Mattel.

So what 

Hasbro's weak report followed a stinker by Mattel last week. The Barbie-parent's sales and profits plunged, though the stock actually rose on a bullish analyst note.

Today, both stocks were down as Hasbro posted a surprise drop in revenue due to cooling sales of Star Wars toys. Overall revenue dipped 2%, missing Hasbro's own growth projection of 4% to 7%. Both toy makers seem to be struggling with the upheaval in the industry brought on by the Toys R Us bankruptcy and kids' growing preference for electronics and digital games over physical toys.

Despite Hasbro's slide, its annual sales actually topped Mattel's for the first time in 24 years.  

Hasbro CEO Brian Goldner also seemed to dismiss a tie-up with Mattel, saying, "We are first and foremost focused on investing in our business." 

Now what 

For Mattel, the volatility is likely to continue. With the ongoing shake-up of the toy industry and shifting tastes among kids, the future doesn't look bright for Mattel. Though the company has touted a turnaround plan, which features cost-cutting, and a focus on innovation and emerging markets, after the stock's long slide in recent years, investors are likely to be skeptical until the numbers improve.

With a disastrous fourth quarter and the upcoming closings of one-fifth of Toys R Us stores, Mattel looks like it will continue to struggle for at least the near future.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool has a disclosure policy.