Stock in Hasbro (ticker: HAS) and Mattel (MAT) is moving in opposite directions on Friday, following earnings results that reflected the toy makers’ loss of a major retail partner in 2018. This year’s holiday season was their first without Toys ‘R’ Us.
The back story: Both Hasbo and Mattel had a difficult 2018, and while the stocks have rebounded this year, they’re still in the red for the past 12 months. Mattel had fumbled in recent years—so much so that some were advocating for it to merge with Hasbro. While its turnaround efforts were under way, both companies were hit with the Toys ‘R’ Us liquidation in March of last year. Hasbro and Mattel were still able to put up decent numbers after the news, but of course the loss of such an important distribution channel led to worries about sales that have dogged the stocks since.
The plot twist. Hasbro and Mattel reported earnings for the fourth quarter—an important one, given that it reflects the holiday shopping season.
Hasbro earned $1.33 a share on revenue of $1.39 billion. Analysts were looking for EPS of $1.68, with revenue of $1.53 billion. The company also raised its dividend by 8%, and said it was working to expand into new areas like mobile gaming and esports. The company said that the Toys ‘R’ Us loss weighed on sales throughout the year, and management said on the conference call that the bankruptcy was more painful than expected. Inventories in Europe were a problem as well.
Mattel’s quarter was more upbeat. It earned four cents a share on revenue of $1.52 billion, while analysts were looking for an 18 cents-per-share loss, with revenue of $1.44 billion. While it too felt the pinch from the absence of Toys ‘R’ Us, which took a 9% bite out of gross sales on a currency-neutral basis, Mattel struck a more optimistic tone about its operations.
Moving Forward. Analysts were weighing in on the quarter Friday morning. Wells Fargo ’s Timothy Condor reiterated a Market Perform rating on Hasbro shares, writing that the company’s downbeat report was all the more striking given the more robust results from Mattel. He said he is still concerned about issues like “superhero genre saturation.”
However, MKM Partner’s Eric Handler reiterated a Buy rating and $102 price target on Hasbro, writing that he’s still positive about the company’s product lineup. ‘We were surprised with the severity of the miss but take some solace that retail inventory levels have significantly declined, which should allow Hasbro to start 2019 with a relatively clean channel and a more efficient cost structure,” he said.
By contrast, Handler has a Neutral rating on Mattel, but he raised his estimate of the stock’s fair value by $3, to $15. He wrote that while cost cuts are working, he still thinks the company’s turnaround is a work in progress. Likewise, UBS ’s Arpine Kocharyan reiterated a Neutral rating, warning that Mattel lost market share in North America in the fourth quarter, and saying Street may already be getting too optimistic about the company’s operating profit and its ability to offset raw materials costs.
Hasbro is down 3.5% to $87.06 in morning trading, while Mattel was up 24.9% to $15.44.
Mattel is smaller, and its past troubles mean that the stock can be more volatile either way after earnings. Concern that the company’s troubles could worsen has prompted short sales of the stock, leading the price to surge when good news emerges, while bad news can trigger more selling.
Still, the fact is that both Hasbro and Mattel survived their first Christmas without Toys ‘R’ Us. Part of the enthusiasm for Mattel reflects that fact, and that the company feels confident about its continuing operations in this rapidly changing toy landscape.
Hasbro took a bigger-than-expected hit from Geoffrey the Giraffe’s shuffle from this mortal coil, but the shares’ decline may also show disappointment about issues in Europe, given that weakness there has been a persistent issue for many consumer stocks.
Write to Teresa Rivas at firstname.lastname@example.org