The battle of the country’s top two toy makers has begun, and believe it or not, a large part of it comes down to the Walt Disney Co (NYSE:DIS) princesses. You read that right: Ariel, Jasmine, Cinderella and Elsa. Mattel, Inc. (NASDAQ:MAT) lost its contract to sell dolls based on the franchise to Hasbro, Inc. (NASDAQ:HAS) in 2014, but the aspects of the deal didn’t go into place until 2016.
It all started when Mattel, the number one toy maker in the United States, reported disappointing fourth-quarter numbers in January.
Overall sales fell 4% due in large part to the absence of Disney princess sales. A stronger dollar also hurt the multinational company, and MAT continues to struggle with declining sales in its iconic Barbara Millicent Roberts brand, more commonly known as Barbie.
Adjusted earnings of 52 cents a share missed Wall Street’s estimates of 71 cents a share, and revenue of $1.83 billion was also short of expectations of $1.98 billion. Last year, Mattel saw earnings of 63 cents a share on revenue just shy of $2 billion. The stock fell more than 17% as a result.
In the meantime, the No. 2 toy maker in the country, Hasbro, has been on fire this week, soaring to new all-time highs after posting record holiday-quarter revenue on Monday. The strength was driven by the company’s girls division, which is interesting to note since prior to winning the Disney princess contract HAS focused mainly on boys’ toys. Revenue in this category jumped 52%, paced by the princess dolls and Baby Alive. The Easy-Bake Oven is still rocking, too.
This news was key because Hasbro was the first toy manufacturer to report strong numbers in what turned out to be a weak holiday selling season. In fact, Mattel CEO Christopher Sinclair cited a “significant U.S. toy category slowdown in the holiday period” following his company’s quarterly release.
I think it’s safe to say Mattel has lost its way in the No. 1 spot, and could probably use a refresh in the C-suites or maybe an acquisition. Its problem goes all the way back to rejecting an in-house designer idea for Bratz dolls, which were then started by another company. A comical amount of lawsuits and reversals followed about who owned the rights, but the only thing it revealed was the lack of innovative thinking by key decision makers.
It’s also worth noting that mergers and acquisitions (M&A) talk has been swirling around Mattel lately. I’m not a big believer in buying stocks only because of a potential takeover. However, MAT has certainly been punished and it might be worth owning up to the eve of its next earnings report. Then, I’d probably reevaluate.
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