Mattel, Hasbro earnings to set stage for dull 2023

By Deborah Mary Sophia

(Reuters) - Mattel Inc and Hasbro Inc are expected to issue downbeat outlook for 2023 when they report quarterly results this week, as the U.S. toy industry is set to moderate after a pandemic-driven boom.

With surging toy prices, both companies had signaled a bounce-back in the second half of this year. However, analysts are concerned about the pace of recovery as consumers are expected to keep their discretionary budget tight given the looming risks of a recession.

Analysts at UBS expect the toy industry to temper this year, saying March and April saw a further slowdown from January and February. While retail sales picked up around Easter, it was not enough to clear excess toy inventories meaningfully.

"Retailers have taken a much more cautious view, in some cases under-ordering versus actual demand levels," UBS analyst Arpine Kocharyan said.

THE CONTEXT

The top two U.S. toymakers grappled with a sharp slowdown in toy demand during the 2022 holiday season as the industry reeled from a tight spending environment and retailers cutting back on inventories, prompting them to flag downbeat earnings for 2023.

"Expectations are pretty tepid given that the year (2022) ended in a less favorable-than-anticipated way... I don't think that this is going to be a banner year for the toy industry by any means," Morningstar analyst Jaime Katz said.

(Graphic: Mattel sales growth set to moderate in 2023 - https://www.reuters.com/graphics/MATTEL-RESULTS/akpeqxollpr/chart.png)

(Graphic: Hasbro sales likely to temper after pandemic peak - https://www.reuters.com/graphics/MATTEL-RESULTS/dwpkdlzbrvm/chart.png)

Toymakers typically earn a big chunk of their sales and profits in the second half of the year, especially during the all-important holiday season.

Hasbro is expected to take a bigger hit in the first quarter as the Transformer toys maker has been giving up shelf space in profitable brands like NERF.

Meanwhile, Mattel, which makes Barbie, Hot Wheels and Fisher-Price toys, has already warned that its sales would be much weaker in the first quarter due to further inventory reductions at retailers.

THE FUNDAMENTALS

** Mattel is expected to report Q1 sales of $740.7 million, down nearly 29% from a year earlier; Hasbro's sales are projected to fall about 24% to $878.4 million

** Analysts expect Hasbro to report per-share earnings of just 1 cent for Q1, while Mattel is projected to post a 19-cent loss per share

** Mattel is set to report results after market hours on Wednesday; Hasbro is scheduled to report on Thursday

WALL STREET SENTIMENT

** Analyst expectations for Mattel's Q1 revenue have been revised down 7% in the last two months; Estimates for Hasbro have seen no changes in the same period, after an 8% downward revision since the company last reported results

** Mattel's shares have slipped about 5% so far this year; Hasbro's stock, meanwhile, has given up roughly 16% of its value

** The current average rating of 13 analysts on both Mattel and Hasbro stocks is "buy"; While Mattel is rated "hold" and "buy" or higher, Hasbro has one "sell" rating and the rest "hold" and "buy" or higher

(Reporting by Deborah Sophia in Bengaluru; Editing by Subhranshu Sahu)