Toy maker Mattel (MAT 15.38, +0.34, +2.2%) announced on Saturday that it intends to offer $1 billion aggregate principal amount of senior unsecured notes due 2025 in a private offering. In addition, it is going to replace its revolving credit facility with a new $1.6 billion senior secured revolving credit facility that will be secured by certain of its accounts receivable, inventory and other assets.
These debt dealings were reported in a Form 8-K filing that was filed today with the SEC. In conjunction with the 8-K filing, Mattel also provided an update on recent developments that underscored the continued difficulties it is facing in the marketplace.
Specifically, Mattel said it expects full-year gross sales to decline by at least a mid-to-high single digit percentage compared to 2016. That dour view was attributed to the negative impact of key retail partners moving toward tighter inventory management and to challenges in the Toy Box and certain underperforming brands.
Mattel did not specify the underperforming brands. For the third quarter, Mattel saw sizable worldwide gross sales declines for each of its brands.
The company also anticipates ongoing gross margin pressure throughout the fourth quarter and suggested that continued negative trends in its sales performance for the balance of the year could result in additional gross margin deterioration on account of inventory write-downs and discounting to clear inventory.
Mattel's operating challenges and efforts to re-size its business are cascading down the income statement. To wit, Mattel noted its operating income margin for the fourth quarter, excluding severance expenses, is expected to be significantly lower than the fourth quarter of 2016.
Last month the stock jumped sharply on reports that competitor Hasbro (HAS 92.49, +1.13, +1.2%) might be interested in acquiring the company. That takeover premium got unwound in short order on subsequent reports that Mattel was not interested in a Hasbro buyout offer.
Today, however, shares of MAT have traded higher in the early-going following the company's update.
Mattel clearly has a lot to work out from an operating standpoint, yet the resilience of the stock to an update that was less-than-inspiring from an operational standpoint implies one of two things: (1) either investors think the worst of the company's problems are behind it or (2) the continued difficulties in the key holiday selling season will make the company more amenable to a potential sale.