Mattel's Turnaround Hits A Snag As Christmas Quarter Disappoints

“Mattel, Inc. MAT's turnaround story has lost momentum as it pushed up its 4Q earnings release and last night revealed disappointing year-end results,” MKM Partners’ Eric Handler said in a note.

The analyst downgraded the rating on the company from Buy to Neutral, while lowering the fair value estimate from $36 to $27.

Disappointing Quarter

Handler mentioned that multiple factors led to the disappointing Q4:16 performance, including a slower-than-anticipated retail environment, lower product reorders and a rise in promotional activity.

“Furthermore, several issues will continue into 2017 (and beyond) such as FX headwinds, rising input costs and an unfavorable product mix,” the analyst stated.

Mattel reported Q4:16 revenue of $1.83 billion and EPS of $0.52, missing the estimates and the consensus. In fact, every revenue segment delivered lower than expected results.

Headwinds

FX accounted for a significant 400 bps gross revenue headwind, with the Q4 gross margin of 47 percent missing the estimate.

“Operating expenses fell by 15 percent, which was better than expected, but the revenue and gross profit underperformance caused operating income to fall below expectations,” Handler went on to say.

Management noted that there was moderate growth during October and November, although it fell slightly short of expectations in the United States and Europe.

For 2017, the company said that the impact from higher inventory and FX could lead to a 200bps headwind to the guidance of mid- to high-single-digit revenue growth.

At last check, shares of Mattel were down 13.40 percent at $27.33.