Is Mattel Up For A Great Q2?

The toy industry has become quite dynamic and is changing with the change in tastes and preferences of people. However, there has been a general shift to gadgets such as tablets and iPads, as children too are fond of such devices. Hence, toy sales are affected to some extent. In order to win back customer interests, the industry players are trying hard.

Industry players such as Mattel (MAT) and Hasbro (HAS) have suffered from this change. This is clearly reflected in their stock price, which has declined since the beginning of the year. Shares of Hasbro have dropped 1.5% whereas that of Mattel has dropped 17%.

The competitive front

Even if we look at the change in share price in the last one year, Mattel's stock price have decreased by 15.8%. On the contrary, Hasbro has inched up by 13.7%. This is mainly because of Hasbro's commendable efforts, which has helped in attracting customers.

For instance, Hasbro's introduction of Digital Gaming and its partnership with companies to introduce toys related to movies, such as Transformers, have been quite effective and successful. Also, it has teamed up with many retailers such as Wal-Mart, Target and Mc Donald's for its franchises.

However, Mattel too has undertaken a host of initiatives to lure more children to its products. For instance, even Mattel plans to partner with retailers so that it can attract more customers and gets a wider exposure.

Expansionary moves

Also, it plans to expand its footprint in Canada, by introducing American Doll in the region. However, this expansion will be made in partnership with Indigo Books & Music Inc., one of the largest gift, book and specialty retailers in Canada. Although this is quite a logical strategy since Canada is close to the U.S. and the brand is well-known to the Canadian people, this move has some drawbacks.

Firstly, the anti-American sentiment in Canada might force people to shun its products, resulting in huge losses for the retailer. Hence, it is better that the company did not go ahead with opening its wholly owned stores in the region. Secondly, it has a lot of competition in the Canadian market who offers similar products at a lower price. The regional players have a strong physical as well as an online presence.

Moreover, the entire feel of the American Girl brand is absent in Indigo stores, which are smaller in size and do not have any other themes, such as the Cafe area, Doll Hospital and Doll Pet Shop. These factors play an important role in the buying decision of customers in the U.S.

What to expect from Mattel this quarter?

Mattel is slated to report its second quarter results this week. Analysts expect a top line of $1.19 billion, a growth of 1.8% over last year. This is probably because of warmer weather which should attract more customers to its stores. However, the bottom line is expected to drop to $0.18 per share from $0.21 per share in the previous quarter. The company is unable to manage its costs, which is weighing on its earnings.

However, its launch of Entrepreneur Barbie might be a game changer. The new concept Barbie comes with a tablet, smartphone and a briefcase.

Mixed quarter expected

Although the new Barbie will boost Mattel's sales, enabling the retailer to meet the revenue estimate, it is difficult to say how the bottom line will change. Also, it faces stiff competition from peer Hasbro. Therefore, the second quarter looks mixed with higher revenue but a lower bottom line.

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