A generational shift augurs holiday blues for Mattel. The toymaker’s shares tumbled after the company posted a 13% quarterly sales drop and suspended its dividend.
The Toys R Us bankruptcy filing hurt Barbie and Hot Wheels sales, but American Girl, which sells direct to consumers, suffered even more. Digital kids are the nightmare of Christmas presents.
The company’s vaunted brands are losing some of their magic. Barbie sales have been declining for several quarters, and took a fresh 6% tumble in the latest quarter compared with the same period last year, while Fisher Price declined 15%.
Entertainment division
The only business to show growth was the entertainment division, which sells toys and action figures tied to Disney movies and computer games like Minecraft. It eked out a meagre 1% sales gain. The firm pointed the finger at Toys R Us, which filed for Chapter 11 bankruptcy protection last month. Mattel gets roughly 10% of its revenue from the retailer, according to S&P Global Ratings.
The company and other retailers are tightening inventories as shoppers shift online, and Mattel is feeling the pain.
But the company is suffering from more than just retailing woes. Mattel’s American Girl Brands posted a 30% decline in sales.
It offers more-lifelike dolls for slightly older kids, and it also sells direct to consumers and through some of its own retail stores, so Toys R Us isn’t the only culprit, or likely even the main one. The sharp sales drop is a worrying sign that Gen Z is shifting from traditional toys to electronic ones.
This is an industry-wide challenge. Lego last month said it was laying off 8% of staff in response to a 5% sales drop in the first half, its first in more than a decade.
Mattel is more vulnerable than many of its rivals, though. Its debt stands at roughly three times earnings before interest, tax, depreciation and amortication, while Hasbro’s leverage is closer to two times. Suspending the dividend was a necessity.
Mattel is still just one notch from junk status, and S&P has a negative outlook on its rating. The company is also close to bumping up against a loan covenant. The holiday season looks likely to be anything but jolly.
(The author is a Reuters Breakingviews columnist. Opinions expressed are her own)
