Coverage: Mattel drops after weak Barbie, American Girl sales

Shares of Mattel Corp. fell by as much as 8.6 percent after the toy maker reported earnings and revenue that were well below Wall Street expectations.

Sarah Whitten of CNBC.com had the news:

The toy company posted a loss of 32 cents per share, excluding items. That was worse than the expected loss of 17 cents per share, according to a consensus of analysts polled by Thomson Reuters.

Mattel reported net revenue of $736 million for the quarter, below estimates for $801 million.

A year ago, Mattel had a loss of 13 cents a share and revenue of $869.4 million

“Our Q1 results were below our expectations due to the retail inventory overhang coming out of the holiday period, but we remain encouraged by strong performance at retail for our key core brands, including Barbie, Hot Wheels and FisherPrice as well as sustained momentum in high-growth markets like China,” Margo Georgiadis, Mattel’s CEO, said in a statement Thursday.

The company had forecast in its fourth-quarter earnings report that year-end inventories would negatively impact 2017 revenue by less than 2 percent.

Mattel shares are down more than 23 percent over the past year.

John Kell of Fortune reported that Mattel’s CEO promised growth in 2017:

Sales declines were broad across many of Mattel’s core brands. Worldwide sales slipped 13% for Barbie and declined 12% for American Girl. Fisher-Price sales dropped 9%, while sales dipped 38% for the company’s construction and arts & crafts brands. The “wheels” category—which includes the popular Hot Wheels brand—was the lone bright spot, up 4%. Gross sales for “other girls” brands were down 34%, but that business was badly hurt by the loss of a key Disney Princess doll license that was awarded to Mattel’s primary rival Hasbro.

While conceding the first quarter was a tough start to the year, Georgiadis struck a bullish tone about how the rest of 2017 would play out. The first quarter is the lightest sales quarter for toy makers like Mattel, which generates a bulk of sales in the back half of the year especially as the industry gears up for the key holiday season. Starting in the second quarter, Mattel should get help from the toys it has made to coincide with the release of Disney’s Cars 3, which hits theaters in the second quarter. That property alone could give Mattel a $300 million boost.

Georgiadis told Fortune that while the first-quarter revenue trends were disappointing, in-store trends were strong for the company’s most popular brands. “We are confident in both the product line and the enhancements we’ve made with Barbie, Fisher-Price and Hot Wheels,” she said. Georgiadis added that more work needed to be done for American Girl and said that while Thomas the Tank Engine was performing well internationally, the brand hasn’t been as compelling in the U.S.

Sruthi Ramakrishnan of Reuters reported that the company still cut its sales forecasts:

Mattel had warned in January that weak holiday-quarter sales, due to higher promotional activity amid weak demand, led to excess inventory that would hurt revenue in the first quarter.

But the impact was much more than what Wall Street, and Mattel, had anticipated.

“What we didn’t expect was the prolonged impact from the leftover retail inventory,” Margo Georgiadis, who took over as chief executive in February, told Reuters.

Mattel’s sales dropped 15.4 percent in the quarter ended March 31, to $735.6 million, well short of analysts’ average estimate of $801.4 million, according to Thomson Reuters I/B/E/S. (bit.ly/2o8O6c8)

The company’s net loss widened to $113.2 million from $73 million year-over-year. Excluding items, it lost 32 cents per share, much more than the 17 cents analysts had expected.

Georgiadis said the inventory issue was essentially isolated to North America and a few European markets, and that Mattel had cleared most of the excess inventory.