The growing popularity of smartphones and online gaming devices have hampered the sales of traditional toys. As a result, toy-makers are witnessing lower demand for their physical toys. For example, the toy maker Mattel (NASDAQ:MAT) has faced lower demand for key products such as its Barbie dolls and Fisher-Price products. It recently reported first-quarter results that did not live up to the Street's expectations, which sent its share price down.

Mattel's miss
Mattel's revenue plunged 5% from the year-ago quarter to $946.2 million. One of the primary reasons for the drop was weak Barbie sales, which declined 14% from the prior year. Also, sales from the Fisher-Price brand dropped 6% year-over-year to $271.4 million as people shifted to electronic toys from physical ones. Moreover, the delayed Easter also played a key role in the top-line decline. Since Easter sales will show up in the second quarter, this hampered Mattel's first-quarter sales.

However, the growing sales of "American Girl" and "Ever After High" came as reliefs for Mattel. Also, Hot Wheels toys registered year-over-year growth of 2%, whereas the growth at American Girl stood at 5%. Revenue from toys based on Frozen, a movie by Walt Disney, increased in 2013. 

Geographically, Mattel did poorly in international markets with a 7% decline in revenue, whereas sales from the U.S. market only dropped 2%. China was one of the weakest performers as the nation's GDP growth slowed to 7.4%, which was below the target of 7.5% set by the Chinese government.

Mattel faces stiff competition from Hasbro
Mattel's peer Hasbro (NASDAQ:HAS) posted better first-quarter results just a day later. Hasbro's top line surged 2% over last year's quarter, clocking in at $679.5 million. Key revenue drivers included 21% growth in girls' toys and 2% growth in boys' toys. This came in sharp contrast to the declining sales of Mattel's Barbie dolls. In fact, Hasbro witnessed great demand for My Little Pony toys, and there is also a TV show based on My Little Pony characters. The company also sells accessories such as books and clothing.

Gun toys and bow-and-arrow based toys also gained popularity, especially with the release of the movie Hunger Games. Moreover, Hasbro looks forward to a better year as Spider-Man and Transformers movies are due for release in the months to come. This will help its boys' toys segment grow further.

Mattel has a few things to look forward to
Nonetheless, Mattel continues to formulate strategies to overcome its competition. For instance, it has partnered with Disney in order to introduce new Marvel and Star Wars-based toys. Since Disney's Frozen benefited both companies last year; this move should prove advantageous for Mattel.

Also, Mattel announced its acquisition of MEGA Brands in March this year. MEGA Brands specializes in construction toys, and this will help Mattel expand its presence in construction sets as well as the arts and crafts category. Moreover, this buyout will drive the toy maker's revenue higher.

Even peer JAKKS Pacific (NASDAQ:JAKK) acquired an outdoor toy manufacturer in July 2012. JAKKS acquired Maui in order to expand its summer and spring activity toy lines. Thus, this acquisition will help the company boost its revenue during the summer season. Also, JAKKS plans to bring Maui's products to international markets.

JAKKS has been quite active on the strategic front. It has been rolling out new products every quarter. In 2014 it expects to launch new variations of Disney Princess toddlers and dolls, Star Wars Rebels toys, Godzilla toys, and toys based on Nintendo's Super Mario. Furthermore, Nintendo has granted JAKKS rights to all of its products. JAKKS will start selling these Nintendo products in spring 2014.

Coming back to Mattel, the company has also launched an outdoor category called BOOMco in select markets. The company has created this dart and target system as a high-end energy play and it will launch in the upcoming summer season. Mattel expects to bring it to international markets in the coming months.

Hence, Mattel is enhancing its products so that it can attract more and more children to them. In fact, it also plans to launch the "Ever After High" brand globally since this brand's products have become quite popular in Mattel's existing markets.

Final Foolish thoughts
Clearly, Mattel has a number of moves in the cards and it should reap the benefits of them in the months to come. However, it faces stiff competition from its peers and investors should watch how it combats the competition through these initiatives. Furthermore, Mattel needs to make more efforts in the Barbie segment because this category is witnessing declining sales. Therefore, it is better to stay on the sidelines with Mattel and wait for some signs of recovery.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.