Can Mattel Stop Toying Around?

Let’s talk toys. Mattel, Inc. (NASDAQ: MAT) is a company I want to own. Well, a piece of it anyway. I’m going to go out on a limb and assume that pretty much everyone knows this company. They make toys, lots and lots of toys. Hot Wheels, Monster High, Ever After High, Polly Pocket, Fisher Price (that’s a big one that’s actually doing well), American Girl, and other stuff, including licensed products for Disney, WWE, and others. They also have Barbie. I’ll be talking more about her below.

So why do I like the company? Because its stock has performed horribly lately and the company is in a turnaround. No shock there if you’ve read some of my other blog articles. The stock was almost $48 at the end of 2013. As of this writing it’s trading around $23.70.

Hasbro Inc. (NASDAQ: HAS) has been eating Mattel’s lunch. Go take a look at Hasbro’s stock over the past three years. A very pretty sight compared to Mattel’s utterly painful chart. One thing that Hasbro recently took from Mattel was a very lucrative Disney (NYSE: DIS) license that included certain Frozen dolls. In case you hadn’t heard, Frozen is HUGE and is expected to remain that way for awhile. The deal ended a nearly 20 year partnership between Disney and Mattel. Ouch.

Hasbro was mainly known for its line of toys for boys, but that may be changing. They want to continue to eat Mattel’s lunch, and take more shelf space away from the toy giant. Will Mattel sit idly by? Can Barbie pull this one out of the fire without melting all over the place in a puddle of horrible smelling resin? I don’t know, but it’s not a pretty visual.

So what’s up with Barbie? She hasn’t been performing well lately. Sales are down, huge, and have been for awhile. In fact, sales were down 19% last quarter, year over year. Admittedly she’s getting up there in years, though you wouldn’t know it by looking. (She must have had some work done.) And that may be the problem. A lot of people think she doesn’t promote a positive, realistic body image to young girls. We might not have worried so much about this in the 50’s, when Barbie was young, but by darn it’s a problem now.

A few days ago, Mattel released its 2015, Q2 earnings report, and held a conference call. I’ll sum up the financial results in a horribly oversimplified manor. If you don’t count foreign currency headwinds due to the strong U. S. dollar, then Mattel did flat, to kinda-sorta ok. Meh. If you DO count the foreign currency headwinds, Mattel did kinda bad, but maybe a little better than the analyst were thinking. Stop me if these financial terms are a bit over your head. In fact, just go listen to the conference call if you’re serious about investing in Mattel. It’s less than an hour, and we’re talking about MONEY here…

One positive is the DC superhero franchise. Mattel expects to make some serious money making toys based on the upcoming movies. There was also talk of some Teenage Mutant Ninja Turtle stuff coming down the pipeline. Toy Story 4 should be a big deal for Mattel as well.

Mattel knows it’s been a poor performer lately. Admitting the problem is the first step right? In the previous conference call, in April, they conceded that they were too slow to embrace change and new technology. So this commitment to change has been in the works for a short while, but it will still take time. In April they also appointed a new CEO, Christopher Sinclair.

According to the Q2 call, Mattel is committed to faster decision making, streamlining the organization, taking risks and innovating. They want to be a faster, nimble organization that gets new products from design to shelves FAST. They seem to be making the right strides in that direction. They also realize that they have work ahead of them to bring back their formerly strong licensing partnerships.

And here’s a big portion of the story, the dividend. Mattel’s yield is about 6.4%. That’s huge. High yields can be a red flag, but during the call they stated that they are comfortable with their commitment to the current dividend. If they are able to maintain this dividend, I believe income investors will rush in and buoy up the stock price. If, however, they cut the dividend in the future, I see this tanking, hard.

But what about Barbie, how is she pulling her weight in this turnaround? Many believe that she will make or break Mattel. They’re pushing hard on the new Barbie Fashionistas line. This is basically Barbies from around the world. Hispanic Barbie, Asian Barbie, African Barbie, ect… I get the impression that Mattel is hoping ethnic diversity will trump body image issues. If this doesn’t work, maybe we can get a Barbie with a beer gut and less of a thigh gap. But expectations are pretty low for the old gal, so any improvement should be well reflected in the stock price.

As I write this, I do not have a position in Mattel. I do, however, have a limit order to initiate a position at $22.90, a little less than a buck lower that it’s currently trading. If it falls below the recent support of $22.32, it might just keep falling for awhile. Looking at the chart, I might buy again at around $18.50. I could see myself averaging down with four buy points, if necessary. I mean, the company isn’t going anywhere, right?

As always, feel free to look at my portfolio and see how I’m doing. And please READ MY DISCLAMER. Make your own decisions, do your own research, and never rely on any single source for information. I am not a financial professional; do not rely on me as such.

Thank you,
Michael, the Stock Picking Bartender

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