Report
Jaime Katz
EUR 850.00 For Business Accounts Only

Morningstar | MAT Updated Forecasts and Estimates from 29 Apr 2019

Mattel's turnaround remains ongoing, hindered by the 2018 liquidation of Toys 'R' Us and ongoing deceleration in Toy Box product demand during a period of secularly slow growth. After stringing together decent growth under previous CEO Chris Sinclair across core brands, inventory clearance and stock-keeping unit creep of lower-productivity brands hurt performance throughout 2017-18. However, the firm's turnaround plan strikes us as a step change, placing heightened focus on core brand productivity and manufacturing realignment that should further improve profits in 2019 as efforts continue to bear fruit, helping to generate positive EBIT after two years of losses. Furthermore, natural gross margin leverage should persist in 2019 as the firm laps inventory obsolescence charges that should no longer exist (a main contributor to Mattel's nearly 900-basis-point slide in 2017), as Mattel laps the Toys 'R' Us liquidation and improved inventory shipments are more closely aligned to demand.Ahead, core brand focus, the capture of new licenses, and a faster supply chain (bringing demanded products to market quickly) could help restore Mattel's sales growth, while supply-chain initiatives (realigning the manufacturing footprint) should improve profitability. Additionally, Mattel's digital plan, which has focused on strategic relationships with Google, Alibaba, YouTube, Nickelodeon, and others, should increase brand visibility, potentially stemming losses to other digital toy manufacturers and peers.Despite recent challenges, Mattel still holds a top position in toy marketing thanks to its highly recognized brands, which we believe has allowed it to recapture key license relationships and win new ones (Despicable Me), boosting top-line promise. Mattel has historically had some of the most popular toys in the industry, which could lead to better point-of-sale results once inventory and brands are rightsized, stabilizing recent brand equity volatility. The firm's market share, along with its scale, supports its narrow moat rating, which remains constrained by low barriers to entry forcing continuous innovation as peers converge on the traditionally high-ROIC business.
Underlying
Mattel Inc.

Mattel is a global children's entertainment company that engages in the design and production of toys and consumer products. The company's portfolio of owned and licensed brands and products are organized into the following categories: Dolls, which include brands such as Barbie, American Girl, Enchantimals, and Polly Pocket; Infant, Toddler, and Preschool, which include brands such as Fisher-Price and Thomas & Friends, Power Wheels, Fireman Sam, and Shimmer and Shine (Nickelodeon); Vehicles, which include brands such as Hot Wheels, Matchbox, CARS (Disney Pixar), and Jurassic World (NBCUniversal); Action Figures, Building Sets, and Games, which include brands such as MEGA, UNO and WWE.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Jaime Katz

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