When toy maker Mattel (MAT 25.21) reported its fourth quarter earnings in late January, its stock was up 15% in 2017. That fourth quarter report, however, turned out to be a big disappointment, and as of Thursday's close, shares of MAT were down 8.5% in 2017. Unfortunately, the stock looks poised to extend that decline as it is trading 7% lower in pre-market action following a first quarter earnings report that was similarly disappointing.
The first line of the earnings press release got to the heart of the matter: "Worldwide net sales and gross sales down 15% as reported and in constant currency."
The inference is that demand for Mattel's products was weak -- or at least not strong without the inducement of heavy promotional activity.
The first quarter struggle was a remnant of the fourth quarter struggles as Mattel was dealing with a retail inventory overhang coming out of the holiday period. The company believes it has now worked through the majority of that overhang, yet it clearly did so at a notable cost to its bottom line.
Mattel's gross margin rate for the first quarter declined 680 basis points to 37.9% of net sales and it incurred an adjusted operating loss of $122.1 million. Its adjusted net loss per common share was ($0.32), versus ($0.14) in the year-ago period, and was well below analysts' average expectation. Net sales of $735.6 million also fell well shy of analysts' average expectation.
There wasn't much to brag about in terms of sales by brand.
Worldwide gross sales for Mattel Girls & Boys Brands were down 16% to $441.1 million, paced by a 13% decline in the Barbie brand, a 34% decline in Other Girls brands, and a 27% decline in the Entertainment business. The Wheels category was the outlier, as sales for that category increased 4%.
Worldwide gross sales for Fisher-Price Brands decreased 9% to $246.9 million while worldwide gross sales for American Girl Brands dropped 12% to $82.2 million. The Construction and Arts & Craft Brands saw a 38% decline in worldwide gross sales to $38.5 million.
On a geographic basis, gross sales decreased 24% in the North America region and 2% in the International region.
Mattel claims to see a clear runway to improving growth and profitability over time, yet with the depth of the sales declines across virtually all leading brands, investors are struggling with the notion that any significant improvement will be achieved anytime soon.
Hence, the focus after the first quarter report isn't on the aforementioned runway to growth so much as it is on the landing strip of persistently weak sales from the past. To that end, the first quarter marked the twelfth time in the last fourteen quarters that Mattel has reported a year-over-year decline in revenue.