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Mattel (NASDAQ:MAT) is the biggest toy manufacturer in the world. Perhaps I should clarify. Mattel doesn’t build the biggest toys in the world; it is the biggest manufacturer of toys in the world with a market cap of $12.31 billion, annual sales of $7.1 billion, and 28,000 employees. In the mid to late 1990s, Mattel was one of the darlings of American investors, especially because of its attractive direct purchase, dividend reinvestment plan. It is also the manufacturer of the darling of all toys, the Barbie doll. But 2014 has not been good to Mattel, as it revealed in its release of its Q2 results this morning. The Mattel share price had dropped to 36.84 from 39.03 in pre-market trading, a decline of 7.1%. Its share price is continuing to struggle to hold its own near the 36.75 mark.
To say the least, this year has not been the fun and games that Mattel would have hoped that it would be. Barbie is no long the queen of the toy kingdom, Mattel’s Hot Wheels aren’t as hot an item as they used to be, and parents don’t seem to be buying Fisher-Price for their preschoolers. During the second quarter, Mattel’s worldwide sales were $1.06 billion, down 9% from $1.17 billion in the previous year. Net income fell from $73.3 million Q2 in 2013 to $28.3 million in 2014.
- Barbie sales were down 15%
- Other branded sales for girls were down 11%
- Hot Wheels sales were down 2%
- Fisher-Price sales were down 17%
There is no doubt that this report has caused pain for some investors. Although Mattel has enjoy a lucrative business, including its licensing agreement with Disney and Pixar, it may well be that the tide has turned as parents are purchasing more sophisticated toys for their children, especially those that are electronic or oriented toward electronic. Just as the stone wheel gave way to wooden-spoked wheels, and just as they gave way to steel and aluminum wheels with rubber tires, it would seem that there is an evolution in the demand for toys.
I’ve always considered the marketing of toys to be a conundrum. The toys are meant for children’s use, but the children are not (in most cases) making the buying decisions. If they were, you could let them choose whatever they want in a toy store and they will want everything. They will especially desire the toys that someone else has. It is the parent to whom the toy must be marketed, so the irony is that an item manufactured for children must be marketed to adults.
(When I was a child, the only toys I had were sticks. I got a new one every Christmas. Then, one Christmas, once my parents could afford it, I got a rock. I tried hitting it with my stick collection and I broke every one of my sticks. The sad part was that I had trained my dog to retrieve the sticks. The first time he tried to retrieve my rock, he caught it in the air and he broke his teeth. After that his bark was worse than his bite.)
I had better get back to Mattel before my boss sends me a nasty memo.
It is becoming apparent that Mattel is going to need to take a hard look at its product offering to become more appealing to the newest generation of electronically-oriented parents. It may take a paradigm shift or two, but some analysts, at least, have the faith that the company will do what it takes and are, therefore, rating Mattel as a buy. Generally speaking, Mattel shares have been trading slightly under both its 60 and 120 moving averages for the past month and under its 60 day average for the past three months. With today’s trading it has dropped significantly below both marks, making it, indeed, a good opportunity to buy. Mattel is down 17.64% year to date.
