After delivering a disastrous second-quarter earnings report, maybe Mattel (NASDAQ:MAT) should go back to Hasbro (NASDAQ:HAS), hat in hand, and ask it to make another offer for the company.

While we don't know how much Hasbro offered for its rival last year, we do know Mattel rejected it as too low and said it ignored the potential for antitrust objections to be raised. But with the Toys R Us bankruptcy ravaging the toymaker's sales, it may be that in this new environment, even Mattel's management might think joining forces with Hasbro isn't such a bad idea after all.

Young girl with a Barbie Dream House

Not even's Barbie's comeback has helped turn Mattel around. Image source: Mattel.

Loss of Toys R Us hits hard

Mattel reported second-quarter revenue of $840 million, down almost 14% from last year, while adjusted gross sales plunged 11%, with the Toys R Us liquidation accounting for 10% of the drop-off in sales. It also announced it was slashing 22% of its workforce, planning to fire some 2,200 employees, and would be selling its two factories in Mexico.

In comparison, while Hasbro was also affected by the loss of Toys R Us, it wasn't nearly as devastating to its performance even though the toy store had represented about 10% of sales for each toymaker.

Hasbro's second-quarter revenues fell 7% in the period to $904 million, though that was well ahead of the $844 million Wall Street had forecast, as were net earnings of $63 million, or $0.48 per share, which easily beat expectations of only $0.29 per share.

Although that might suggest analysts were simply gloomier than was warranted, it is clear that Mattel is a seriously faltering business, while Hasbro is showing an ability to sustain itself in this new retail environment.

More misses than hits

It also highlights why Mattel's management might have been a little hasty in rejecting Hasbro's buyout offer. Clearly they have a higher opinion of the company's worth than just about anyone else, and though it does still have valuable properties like Barbie and Hot Wheels, which saw sales rise 12% and 21%, respectively, in the most recent quarter, Barbie isn't the doll she used to be.

It's only recently that she's found her footing again. The oft-criticized doll had suffered from years of lackluster sales until a repositioning of it as a platform for female empowerment allowed it to make a u-turn. Sales of Barbie surged 24% in the first quarter, so its latest outing may be a softening once more; it's going to take a few quarters to see which way things go.

After all, Mattel has failed to turn around the American Girl brand, sales of which tumbled 21% in the first quarter, and plunged 33% in the second. Even Disney questioned the wisdom of partnering with Mattel, ultimately yanking its Frozen and Princess dolls from it and giving them to Hasbro.

So, rather than risk screwing up Barbie's momentum -- Mattel has gone through four CEOs in four years, making continuity a concern -- folding her into Hasbro's superior marketing machine could revitalize the brand considerably.

Hasbro has significant experience in taking a property and making it profitable. From its own in-house stable of brands to those it licenses from third parties, the toymaker is a juggernaut when it comes to driving demand for toys. From Transformers and Nerf to Star Wars and Marvel comics characters, Hasbro is able to leverage considerable TV and movie partnerships into a formidable portfolio of brands.

Key takeaway

Mattel just isn't in the same class as its rival, and the values of its brands have depreciated over time. It also appears that it has relied more heavily on Toys R Us to carry it, and now that it's gone, Mattel could see its brands' values diminish further.

The cascading developments have resulted in the deterioration of Mattel's profit margin as well, and it now has year-to-date operating losses in excess of $465 million, much worse than the $175 million loss reported last year.

Again, without knowing what Hasbro bid for Mattel, a case could reasonably be made that the offer was actually too low. However, if Mattel's condition worsens, executives may wish they had accepted Hasbro's offers when it was made, and if another offer is made, it may not be so generous.