Toy maker Mattel (MAT 12.33, -3.04, -19.8%) reported its third quarter results after Thursday's close and the performance of its stock in the wake of that report says it all. Shares of MAT are down 20% in pre-market trading.
It was a dismal report, accented by a 13% decline in net sales of $1.56 billion, which was driven by sizable worldwide gross sales declines for each of the company's brands. That was well shy of analysts' average expectation, as was the company's adjusted profit of $0.09 per diluted share, which plummeted 87% from the same period a year ago on a comparable basis.
The downturn in earnings flowed from a gross profit margin contraction of 700 basis points, which was attributed to unfavorable product mix, higher freight and logistics expenses, an unfavorable impact from the Toys "R" Us bankruptcy, and lower licensing income.
The crux of the matter, though, is that Mattel's products just aren't resonating with consumers.
By brand, worldwide gross sales were down 9% for Mattel Girls and Boys, down 15% for Fisher-Price, down 30% for American Girl, and down 29% for Construction and Arts and Crafts.
To be sure, that's not all because of Toys "R" Us. There is a major disconnect right now with the consumer, with competitive pressure from Hasbro (HAS 93.00, -1.93, -2.0%) and digital entertainment options making it all the more difficult for Mattel.
Mattel nonetheless said it is optimistic about the future and its ability to reposition the company to drive enhanced returns for shareholders. To increase its financial flexibility, strengthen the balance sheet, and facilitate strategic investments, Mattel announced its Board of Directors suspended the quarterly dividend beginning in the fourth quarter of 2017.
Mattel announced a cut in its quarterly dividend to $0.15 (from $0.38) in mid-June. By suspending it outright not long thereafter, Mattel underscored the depths of its operating challenges for a lot of investors. Based on the drubbing the stock is taking, many are not inclined to stick around to wait for Mattel's turnaround to unfold.