Toy Stories Turn As Hasbro Vanquishes Bigger Brother Mattel

The first-quarter results of the two largest publicly traded U.S. toymakers — Hasbro, Inc. HAS and Mattel, Inc. MAT — are already out, and in biblical proportions, Davidian Hasbro rose in stature and ranks to topple the Mattel Goliath.

Q1 Summary

Mattel reported last Thursday a first-quarter adjusted loss per share of $0.32, wider than the loss of $0.14 a year earlier. Net sales were down 15 percent to $735.6 million.

Analysts, on average, estimated a loss of $0.17 per share on revenues of $801 million.

The company blamed the shortfall on retail inventory overhang coming out of the holiday period.

Margo Georgiadis, CEO of Mattel, commented:

"We are confident we have worked through the majority of this overhang and look forward to a strong launch of Walt Disney Co (NYSE: )'s 'Cars 3' theatrical release in the second quarter. While we have a lot of work to do to successfully position Mattel for the future, we see a clear runway to improving growth and profitability over time."

Georgiadis, a former Google executive, took the reins of the company on February 8, the second change to the CEO position since 2015.

Meanwhile, Hasbro, which released its first-quarter results on Monday, said its first-quarter revenues rose 2 percent to $849.7 million. Net earnings increased to $0.54 per share from the year-ago's $0.38 per share.

The results trumped the consensus estimates that called for earnings of $0.32 per share on revenues of $822.1 million. The icing on the cake was Hasbro's revenue dollars surpassing that of Mattel for the first time since 2000.

Source: Y Charts

Mattel's Brand Weakness

• Barbie: Down 16 percent.
• Other Girls Brands: Down 34 percent (the loss of Disney Princess doll license business, beginning in 2016, is still hurting the company).
• Wheels Category: Up 4 percent.
• Entertainment Business: Down 27 percent.
• Fisher-Price Brands: Down 9 percent.
• American Girl Brands: Down 12 percent.
• Construction And Arts & Crafts Brands: Down 38 percent.

Hasbro's Gaming: Competitive Differentiator

• Hasbro said in its earnings release that Hasbro total gaming revenue, including all gaming revenue, mainly Magic: The Gathering and Monopoly, came in at $253.3 million, up 10 percent.
• Franchise brand revenues rose 2 percent to $423.6 million, helped by revenue growth in Nerf, Transformers and Monopoly. Hasbro gaming revenues climbed 43 percent to $142.9 million.
• Emerging brand revenue rose 25 percent to $70.2 million.
• However, partner brand revenue fell 18 percent to $213 million.

Stocks Reflect Divergence In Fundamentals

Ever since Hasbro and Mattel reported their fourth-quarter results in late January, the stocks have taken a divergent route. As opposed to the 30 percent gains for Hasbro, Mattel's shares have slid 20.9 percent in the year-to-date period.

Source: Y Charts

Analysts Bank On Mattel's Turnaround

Unlike naïve investors, analysts have placed bets on the struggling Mattel. A Barron's report, quoting Wells Fargo analyst Timothy Conder, said he prefers Mattel over Hasbro, as Mattel is still in the early innings of its turnaround, leaving a long runway for growth ahead.

The analyst also sees a number of catalyst for Mattel in the year ahead, including clearance of channel inventory, "Cars 3" success and working capital improvement progress, etc.

Hasbro's stock, which shot to an all-time closing high of $101.70 on Monday, by virtue of a 6 percent rally, was last seen losing 0.58 percent to $101.11. On the other hand, Mattel's stock, which pulled back about 13 percent last Friday, was advancing 1.62 percent to $21.95.

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