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Can Declining Revenues Hurt Mattel (MAT) in Q2 Earnings?

Zacks Equity Research

Mattel, Inc. MAT is scheduled to report second-quarter 2019 financial numbers on Jul 25, after the market closes.

Not exempting the fate of all traditional toymakers, the company is facing a dearth of consumer demand for quite some time now. Notably, Mattel has recorded dismal sales over the past few quarters due to the Toys ‘R’ Us liquidation. This trend is likely to have continued in the second quarter of 2019. Also, earnings may have been affected in the to-be-reported quarter despite the company’s cost-saving initiatives.

Notably, shares of Mattel have lost 29.4% over the past year compared with the industry’s 34% decline.

 

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Let us see how the company’s top and bottom lines will shape up in the second quarter.

Top Line to Continue Declining

After the Toys “R” Us liquidation, Mattel has been witnessing a sales slump across the majority of brands. In fact, the company’s net revenues in 2018 declined 8% year over year primarily due to the liquidation. In the first quarter of 2019, net revenues declined 3% year over year. We believe that the effect of this liquidation lingered further in the second quarter as Toys “R” Us was the last major chain, fully dedicated to selling toys.

Subsequently, the Zacks Consensus Estimate for total revenues in the second quarter is pegged at $820.6 million, suggesting a 2.4% fall from the year-ago quarter’s reported figure.

Meanwhile, the lack of innovative schemes for brand awareness and brand innovation has been hurting Mattel’s top line. Though overall POS has been mostly positive, owing to the company’s efforts to lower retail inventories, the improvement is not significant, which may have further dented second-quarter sales.

Despite relying heavily on a growing pipeline of tech-enabled products that capitalize on new play patterns, the company has probably failed to revive sales in the to-be-reported quarter.

How Will Earnings Shape Up?

Despite focusing on achieving cumulative cost savings, Mattel may not have been able to navigate the greater top-line pressure in the second quarter.

Consequently, the consensus estimate for its earnings is pegged at loss of 35 cents for the to-be-reported quarter. In the prior-year quarter, it reported loss of 56 cents.

What Does the Zacks Model Unveil?

Our proven model does not predict that Mattel is likely to beat estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Currently, Mattel has an Earnings ESP of 0.00% and a Zacks Rank #3.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Mattel, Inc. Price and EPS Surprise

 

Mattel, Inc. Price and EPS Surprise
Mattel, Inc. Price and EPS Surprise

Mattel, Inc. price-eps-surprise | Mattel, Inc. Quote

Stocks With Favorable Combinations

Here are a few stocks from the Consumer Discretionary sector that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the second quarter:

Las Vegas Sands LVS has an Earnings ESP of +0.41% and it currently carries a Zacks Rank #2. The company is scheduled to report quarterly numbers on Jul 24, after the market closes. You can see the complete list of today’s Zacks #1 Rank stocks here.

SeaWorld SEAS has an Earnings ESP of +11.01% and a Zacks Rank #3 at present. The company is scheduled to report quarterly numbers on Aug 6, before the opening bell.

Melco Resorts MLCO currently has an Earnings ESP of +27.12% and a Zacks Rank #3.

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