What happened
Shares of Mattel, Inc. (MAT +1.86%) fell again Monday after the toy maker received several downgrades from analyst firms and credit reporting agencies. Among them were Fitch and Jefferies, which both lowered their view of the struggling toy company. As a result, Mattel shares were down 4% as of 11:53 a.m. EST, after trading down as much as 8.6% earlier in the day.
Image source: Mattel.
So what
Fitch downgraded the stock two steps further into junk territory to B+ as Mattel posted a wide loss in the key holiday quarter and is now coping with hundreds of Toys R Us stores closing. Fitch said, "Execution missteps, including the inability of the company to effectively respond to evolving play patterns and ongoing retail challenges, with retailers cutting back on inventory purchases, and most recently the September 2017 bankruptcy of Toys 'R' Us, Inc., have pressured operating results and cash flow."
Jefferies, meanwhile, downgraded its rating on Mattel to underperform, arguing that the upside case for Mattel is already priced in and that the stock would fall if the anticipated turnaround doesn't materialize.
Now what
Last week, Toys R Us, a key partner for Mattel, said it was closing 200 stores in addition to 182 it already announced it was closing in January. Mattel is struggling with a both a collapse in traditional retail channels and children's preference for electronics and screens over classic toys like Barbie. CEO Margo Georgiadis has promised to turn around the company by cutting costs and focusing on innovation and e-commerce, but given the secular headwinds in the industry, that won't be easy. With the company expected to report another loss this year, today's downgrades seem justified.
