Please ensure Javascript is enabled for purposes of website accessibility

Here’s Why Mattel Hit a Bump in the Road

By William Bias - Jul 28, 2014 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Mattel's stock is down, but not out, which brings a cheaper price for Foolish long-term investors.

Source: Motley Fool Flickr by Ben Popkins

Last week investors in toy company Mattel (MAT -1.12%) saw its stock price plummet 8% as investors reacted poorly to the company's second-quarter earnings, where year-to-date revenue and net income dropped 7% and 85%, respectively. Of course part of this stems from acquisition costs pertaining to the Mega Brands acquisition earlier in the year. However, there are three other things that caused Mattel's most recent bumpy patch.

Decline of some traditional brands accelerated
One of the main catalysts behind Mattel's top-line tumble stemmed from an accelerating decline of its Barbie and Fisher-Price brands. While Mattel's Wheels line showed improvement over 2013, results in the most recent quarter were still in the negative range. Of course, Mattel isn't taking this lying down. According to the most recent earnings call, Mattel brought back Richard Dickson, who previously demonstrated success in revitalizing the Barbie brand. The company hopes he can duplicate this success on a broader scale as chief brands officer. Here is how each of the company's major brands have faired in the company's recent financial releases:

Year over Year Sales


Q2 2014 















American Girl




 Source: Mattel SEC filings

Monster High hits a brick wall
During 2012 and 2013, Monster High contributed heavily to the year-over-year growth of Mattel's other girls segment, with the overall unit growing 57% and 25%, respectively. The other girls segment combined with the American Girl segment contributed heavily to Mattel's overall revenue growth in recent years. However, Monster High growth fell off the cliff in 2014, contributing to an 11% decline in the other girls segment.

Mattel's management blamed difficult comps relative to last year and theorizes interference from competitive activity. They also gave an indication that point of sale trends continue to point downward for Monster High's brand, meaning that things will most likely get worse before they get better.

Realizing that Mattel needs to get smarter about advertising, company executives repeatedly emphasized the reallocation of ad spending toward the latter part of the year when consumers do their holiday shopping. Mattel executives partially blamed top-line declines on temporarily lower brand awareness as a result of this advertising shift. 

A ray of hope
I agree with fellow Fool Bob Ciura that Foolish investors should look beyond its current woes. Mattel recently acquired Mega Brands. While integration costs will temporarily impact earnings and margins, this new subsidiary will add diversity to the company. The construction and arts and crafts business represents a $10 billion market. Last year Mega Brands registered revenue of $405 million, meaning that it commands a small share of the market and has plenty of room to run.

American Girl shows continued sustainability and potential, as Mattel plans a Canadian expansion via a partnership with Indigo stores. Mattel's executives also expressed hope for Ever After High, a new line gaining momentum that will hopefully be a significant contributor to revenue in the future. Also next year we will see the release of the new Star Wars films, which will hopefully provide a positive catalyst for Mattel's licensed products.

Foolish takeaway
Mattel is having difficulties on multiple fronts with its core brands. It's important that Foolish investors focus on the long term viability of these brands and no on short term results. That being said, many of Mattel's major brands have been experiencing a multi-year decline and potential investors need to way this fact carefully when evaluating an investment in the company.


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mattel, Inc. Stock Quote
Mattel, Inc.
$22.08 (-1.12%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.