Holiday shopping season is the biggest time of the year for toy sales, but Mattel, Inc. (Nasdaq: MAT) investors may not be getting the happy holidays they had hoped for this year.
According to Argus Research analyst John Staszak, Mattel is limping into the fourth quarter this year and there is no indication or a rebound any time soon.
Mattel stock is already down 34.4 percent in 2017, and Staszak says there’s very little going right for the company at the moment.
[See: 7 of the Best Stocks to Buy for 2018.]
“We are concerned about Mattel’s falling revenue and widening losses and note that the [the third quarter] gross margin fell by 440 basis points due to higher royalty payments, less favorable product mix and lower licensing income,” he says.
While he expects the company’s new “Cars 3” license to provide a sales boost in the near term, it won’t be enough to offset the loss of the company’s Walt Disney Co. ( DIS) Princess license and lackluster sales across several of Mattel’s other key brands.
To make matters worse, Mattel recently lost its one silver lining for income investors when the company announced it would be suspending its 3.3 percent dividend starting in the fourth quarter in an effort to cut costs. Brick-and-mortar U.S. retail companies have been struggling in 2017, and the toy industry is no exception. In September, Toys ‘R’ Us, which once accounted for as much as 10 percent of Mattel’s total sales, filed for bankruptcy.
Mattel blamed Toys ‘R’ Us for its 22 percent decline in U.S. sales in the third quarter.
Mattel investors got some surprisingly good news this month when the Wall Street Journal reported that competitor Hasbro ( HAS) has made an undisclosed buyout offer for Mattel. Staszak says the two companies will likely have difficulties completing a merger due to antitrust concerns.
[See: 7 Companies Primed for an Amazon Buyout.]
“We also warn that the two firms have discussed a merger before and the talks have been unproductive because Mattel believed Hasbro’s offer to be inadequate,” Staszak says.
With an unclear path to a buyout, poor underlying business fundamentals and no dividend, it’s difficult to make a compelling case that Mattel stock can recover in the fourth quarter. Argus has lowered its 2017 and 2018 earnings per share estimates for Mattel from $1 and $1.30 to 80 cents and $1. The firm has a “hold” rating on Mattel stock.
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No Holiday Gift for Mattel, Inc. (MAT) Investors this Year originally appeared on usnews.com
