What happened
Shares of Mattel (MAT 0.67%) fell 12.1% in February, according to data from S&P Global Market Intelligence, after the toymaker disappointed Wall Street with a big swing and a miss on fourth-quarter earnings.
Mattel saw revenue tumble 22% from the year ago period to $1.4 billion, a 19% drop after accounting for the impact of foreign currency exchange rates, while earnings plummeted to $0.18 per share from the $0.56 per share generated last year. That was well below analyst expectations of profits of $0.29 per share on sales of $1.68 billion.
Image source: Getty Images.
So what
While chairman and CEO Ynon Kreiz maintained consumer demand for its toys and games was still strong, he admitted Mattel's "fourth-quarter results were below our expectations, as the macroeconomic environment was more challenging than anticipated."
It looks like it's going to carry on throughout the year as well, as the toymaker's earnings guidance of $1.10 per share to $1.20 per share was far below the $1.60-per-share result Wall Street was looking for with sales "comparable" to 2022, or $5.4 billion. Analysts had forecast $5.9 billion in sales.
Although Mattel enjoyed strong growth closer to Christmas with double-digit sales in December, the burst of discretionary consumer spending was not nearly enough to offset the sharp declines seen in October and November. The toy company was also hurt by much higher expenses for managing its inventory heading into the quarter, though it says its balance sheet is the best it's been in years.
Mattel has $2.3 billion in long-term debt, compared to $761 million in cash and equivalents.
Now what
Wall Street is still upbeat on the longer-term prospects for the toy company, as analysts kept their buy ratings on the stock even as they cut their price targets. However, investors might want to be more cautious.
Kriez told analysts retailers were not replenishing their orders for some of Mattel's biggest power brands, such as Barbie, Fisher-Price, and Thomas & Friends. Although Hot Wheels remains, well, hot, enjoying its fifth consecutive year of record growth, Barbie sales fell after two years of double-digit growth rates.
That's significant because Barbie accounts for a quarter of Mattel's annual sales (Hot Wheels represents another 20%).
Hoping to cash in on nostalgia, though, Mattel will be relaunching Barney, the purple dinosaur. As someone whose kids were raised with Barney, I had hoped to never hear that theme song ever again.
