Yahoo Finance Here's Why You Should Retain Mattel (MAT) Stock for Now
Mattel, Inc. MAT is likely to benefit from digital initiatives, strong demand for Hot Wheels and cost-saving program. Also, the emphasis on licensing agreements bodes well. However, inflationary pressures are a concern.
Let us discuss the factors that highlight why investors should retain the stock for the time being.
Factors Likely to Drive Growth
Mattel has been undertaking efforts on the digital front and focusing on better execution of marketing and promotional initiatives. The company formed a brand development framework to unlock the scale and profitability of its brands and modernize them for the digital world. The company is making significant progress to transform Mattel into an IP-driven high-performing toy company.
During the first quarter of 2023, the company stated progress on capturing the full value of its IP in its business verticals outside the toy aisle. During the quarter, the company announced a licensing agreement for Disney's Wish (releasing in November 2023). It also announced the Hot Wheels ultimate challenge primetime show on NBC and the Barbie Dreamhouse challenge (a new home makeover competition series) on HGTV. The company emphasized on licensing agreements with Disney (with respect to Little Mermaid dolls) and Hasbro to drive growth.
The company has been witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects. During first-quarter 2023, gross billings at the Hot Wheels brand rose 1% (on a reported basis) and 2% (at constant-currency basis) year over year. In International, sales at Hot Wheels rose 4.6% year over year to $125.2 million.
Mattel is also focused on cost-saving efforts to boost the bottom line. Through its current cost-saving program, the company is focused on expanding margins. It simplifies its organization structure, optimizing processes and supply chain to generate savings across operations. The program contributed $21 million of incremental savings to the cost of goods for the first quarter of 2023. The company anticipates the program to deliver additional savings of $300 million by 2023.
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Shares of Mattel have gained 11.6% in the past six months compared with the industry’s 5.2% growth.
Concerns
Mattel has been continuously incurring increased expenses, which have been detrimental to margins. During the first quarter of 2023, adjusted gross margin contracted 660 basis points year over year to 40%. The downside was mainly caused by inventory management efforts, including higher close-out sales and inventory obsolescence expenses, cost inflation and unfavorable fixed cost absorption. The company anticipates the challenging macroeconomic environment to persist for some time.
Zacks Rank & Key Picks
Mattel currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are MGM Resorts International MGM, Marriott International, Inc. MAR and Crocs, Inc. CROX. While MGM and MAR flaunt a Zacks Rank #1 (Strong Buy), CROX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
MGM Resorts has a trailing four-quarter earnings surprise of 81%, on average. The stock has increased 24.7% in the past year.
The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates rises of 2.2% and 31%, respectively, from the year-ago period’s estimated levels.
Marriott has a trailing four-quarter earnings surprise of 8%, on average. Shares of MAR have gained 13.4% in the past year.
The Zacks Consensus Estimate for MAR’s 2023 sales and EPS indicates improvements of 12% and 24.5%, respectively, from the year-ago period’s levels.
Crocs has a trailing four-quarter earnings surprise of 19.6%, on average. Shares of Crocs have surged 105.4% in the past year.
The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates gains of 13.2% and 5.8%, respectively, from the year-ago period’s levels.
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