Stock spotlight: Mattel toys with ways to sell more products
Barbie is vacating her pink Malibu mansion and hunting for international digs. Thomas the Tank Engine is being revamped as an even livelier locomotive. Max Steel, the new kid on the block, is marketed as a “modern day tech superhero.”
The toy brands, all properties of Mattel Inc., represent an evolution at the El Segundo company. At age 68, the company is incorporating more digital elements into its toys, embracing more Hollywood partnerships, pushing into foreign markets — whatever it takes to keep its status as the world’s largest toy maker.
Mattel owns brands such as Hot Wheels, Fisher-Price and American Girl. In 2012, the company was behind seven of the top 20 toys in the industry, according to research group NPD. The stock, which closed Friday at $44.65, recently burst through a 15-year high. So far this year, the stock has risen nearly 22%.
That’s a strong rebound from the recession, a “terrible time for the industry, when everyone got caught flat-footed,” said Needham & Co. analyst Sean McGowan. Mattel and its rivals had to shave down new product proposals and hunker down until consumers eased off the penny-pinching.
In addition, the company is trying to recover from a decade-long slide in its Barbie brand. Global sales of the doll slipped 3% in 2012. But the company’s overall girls’ portfolio was up 57%, driven largely by the Monster High doll collection.
The holiday season was “a little choppy,” Mattel Chief Executive Bryan Stockton told analysts in February. Stockton took over as chief executive in early 2012 and added the chairman role Jan. 1.
“We think the performance of the toy category was particularly encouraging, especially in light of the 1, 2, 3 punch of a declining GDP, fiscal cliff anxiety on the part of consumers and also declining consumer confidence,” he said.
In the first quarter, which ended March 31, Mattel’s net revenue rose 7% from a year earlier to $995.6 million. The company earned $38.5 million, up from $7.8 million a year earlier.
The latest
At the New York International Toy Fair in February, the company showed off new products such as the Hot Wheels Car Maker, which children can use to build and customize their own toy cars.
Also popular: the Barbie Digital Makeover Mirror, which turns an iPad into a digital mirror and, using facial tracking technology, allows users to apply makeup on screen without making a real-life mess.
Barbie celebrated her 54th year on March 9. Mattel is taking the doll on a worldwide tour to help find her a replacement residence after offering her fictional Malibu Dreamhouse for make-believe sale this year.
Progress
Mattel has an array of entertainment-related partnerships. The company launched a slew of merchandise related to the new animated television show “Max Steel” — which in classic superhero fashion involves a teenager who develops special powers.
“What’s still been lacking, or noticeably not as strong at Mattel, is a boys’ action line,” McGowan said. “All eyes are on Max Steel.”
This summer, a castle play set, talking animal toys and princess dolls based on Disney Junior television show “Sofia the First” roll into stores. Mattel also scored big with a toy deal for Disney’s “Cars” spinoff film “Planes.”
Mattel isn’t confining its hopes to Hollywood. The toy maker employs nearly 30,000 people in 40 countries and territories and sells its goods in more than 150 nations. Stockton said he hopes the company will eventually generate much of its revenue from international markets.
Challenges
The company’s legal spats with MGA Entertainment Inc. over the Bratz doll line may still be playing out. A federal judge recently told MGA that it can ask for court permission to continue fighting Mattel over trade secrets related to the popular toy collection.
And following the less-than-spectacular holiday season and what McGowan called “a pretty violent upswing” in commodity and labor costs, Mattel said it implemented a low-single-digit global price increase at the start of 2013. The company instituted a slightly higher price bump the year before.
“They have pretty decent product momentum, they’re swimming in cash and they have a good dividend that they continue to raise,” McGowan said.
Analyst opinions
Though advances in electronics — smartphones, tablets and the like — are eating away at boys’ toys such as action figures and board games, Mattel can lean on its strong girls’ business, said MKM Partners analyst Eric Handler. The improving economy will probably drive up consumer spending, he said.
“I’m looking for above-average growth this year,” Handler predicted. “There’s a bunch of new drivers.”
