Mattel impresses analysts who now seek guidance at toy fair

Bloomberg

Mattel Inc. soared as much as 30 percent, the biggest intraday gain on record after the toymaker’s quarterly results blew past estimates, and posted its first earnings beat in three years.
Analysts applauded the Barbie- and Hot Wheels-driven sales strength and believe that, together with the gross margin and earnings beat, shares should move higher. And, while highlighting global retail transactions that declined by double-digits in the fourth quarter, lagging shipments, they still said Mattel’s “well positioned for 2019.”
Next, analysts will watch for 2019 guidance, which management will discuss at the 2019 Toy Fair in New York. In contrast to Mattel’s better-than-expected holiday quarter, Hasbro Inc. earlier announced that its quarterly results fell short of analysts’ expectations. Shares fell as much as 5.1 percent.
Sales outperformance was primarily driven by Barbie and Hot Wheels shipment up double-digit percent in constant currency. “We had previously tagged stronger sell-through
for these brands in Q4 vs rest of the toy industry, though it seems as if shipment rate of up +12-15% is still ahead of retail sell-through,” said Arpine Kocharyan, analyst at UBS.
Mattel said retail inventory at current customers is down by a mid-single digit percentage y/y. “Clean inventory into ‘19 after significant Toys ‘R’ Us disruption in ‘18 has been a key part of the bull thesis.”
Kocharyan questions the shipment versus retail disconnect, noting that Barbie point-of-sales (POS) rose mid-single digits in the quarter vs shipment up 15 percent and Hot Wheels were ahead low single digits at retail vs shipment up 12 percent. Overall, wholesale retail POS was down double digits globally, “in line with our checks and softer than rate of shipment.” While the company is tracking ahead of its cost savings plan, flow through in 2019 may be challenged as Mattel pointed out raw material cost inflation, currency headwinds and incremental spending of at least $85 million this year.
Bloomberg Intelligence analysts say, “Mattel’s better-than-expected 4Q results may trigger an upward revision in analysts’ 2019 sales-growth targets beyond current low-single-digit expectations.”
“We believe Barbie and Hot Wheels brands will remain the driving forces behind Mattel’s top line but remain concerned about persistent weakness in its Fisher-Price and Thomas & Friends products. Management was reluctant to provide details on its strategy, but we expect to receive some clarity on the revenue-growth approach during the Toy Fair.”
“Lead IP-brands Barbie (+12%) and Hot Wheels (+9%) contributed half” of the approximate $100 million of sales outperformance, and “reduced sales discounts were the balance,” said Stephanie Wissink analyst at Jefferies.
Sales continue to be “highly mixed by brand, but the ones that matter most grew.” That said, it will be difficult to lap Barbie and Hot Wheels growth, and Mattel still has work to do to improve its other brands. “Barbie added $134m to its sales base in 2018 in the absence of direct competition from Disney (Hasbro).