Mattel did terribly in the holiday quarter -- is it a buy on the sell-off?

Posted Feb 2nd 2009 5:00PM by Steven Mallas
Filed under: Earnings Reports, Mattel, Inc (MAT), Hasbro Inc (HAS)

Mattel, Inc. (NYSE: MAT), big rival of Hasbro, Inc. (NYSE: HAS) and JAKKS Pacific (NASDAQ: JAKK), had one apocalyptically bad quarter. According to today's Stocks in the News, the toy maker earned $0.49 per share in the fourth quarter. Expectations were for $0.72 per share. Know that horrible Christmas retail season you've been hearing about? It's real.

Mattel, it seems, wasn't able to leverage any of its brand power to save itself from the recession. Well, I suppose that isn't entirely true, since American Girl sales went up 5% in Q4 according to the corporate press release. But Mattel's famous, historical brands, Hot Wheels and Barbie, did no heavy lifting whatsoever, and you would have expected them to help out at least a little. Worldwide gross sales for Fisher Price decreased 10%. For Barbie, the plunge was 21%. And for the Wheels category (which includes Hot Wheels, Matchbox, and remote-control items), sales dropped 19%.

And there was less operational cash generated for the entire fiscal year. Granted, there was currency stuff going on, but even CEO Robert Eckert made a statement about Mattel not being immune to the economic slowdown and that, for now, cost-cutting would be the word of the year in 2009. To me, that signals that he essentially believes that the company and its portfolio are simply at the mercy of both the global crisis and the consumer's reticence to pay top dollar for highly discretionary items such as toys and games. And that isn't encouraging.

The toy company's stock is off 15% as I write this. I think it would have to go down like another 20% for me to find the moxie to step in and call a bottom. Because Mattel had such a bad Christmas, how on earth can the company do well in the non-Christmas quarters?

At this time, I just don't see a thesis for the stock. Yes, I can hear all the value investors out there talking about its yield and how the business isn't going to disappear. Sure, a value case could be offered, but I honestly think the stock could go below $10 per share before it bottoms out, so I wouldn't be buying now no matter what. Too much risk...

Disclosure: I don't own any company mentioned; positions can change without notice.

Tags: HAS, Hasbro, JAKK, jakks pacific, JakksPacific, MAT, Mattel, Robert Eckert, RobertEckert, toys