Yahoo Finance Mattel, Inc. (MAT) Dragged Down by Toys R Us Liquidation
Roughly six months after filing for bankruptcy, Toys R Us announced it will be closing or selling its remaining stores in the U.S. Although the decision wasn't a huge surprise to the market, shares of toy maker Mattel, Inc. (Nasdaq: MAT) fell more than 2 percent on Thursday on Thursday on fears that the closings will put even more pressure on slumping sales.
Toys R Us has said it is seeking approval to liquidate its remaining inventory, including its 735 U.S. stores. The toy retailer is not along in its struggles to compete with a new generation of online retail competitors, including Amazon.com ( AMZN) and Walmart ( WMT). The International Council of Shopping Centres has reported that more than 8,000 U.S. brick-and-mortar retail stores closed in 2017, double the average annual rate of closings over the past 10 years.
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Amazon and Walmart are expected to be among the biggest winners from the liquidation. Jefferies estimates Amazon will snatch up roughly 40 percent of the remaining Toys R Us revenue, while Walmart will get 30 percent of its business.
However, Jefferies analyst Stephanie Wissink says toy makers Mattel and Hasbro ( HAS) will both be forced to deal with an industry-wide sales decline of between 2.5 and 5.5 percent in 2018 resulting from the closings.
"We ... expect the first half to be affected by reduced order flow from Toys R Us and adjacent retailers, as companies like Target ( TGT), Walmart, dollar stores, etc. reconcile inventory," Wissink wrote on Thursday, according to Reuters.
Prior to the store closings, Toys R Us was Mattel's second-largest customer, accounting for between 15 and 20 percent of the company's U.S. sales and 11 percent of its global sales. To make matters worse, Toys R Us also owes Mattel more than $135 million, according to the Wall Street Journal.
Mattel stock is now down more than 45 percent in the past year, and CFRA analyst Keith Snyder says investors shouldn't expect things to get better anytime soon.
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"The North American market will continue to be impacted by the Toys R Us bankruptcy," Snyder says. "We see 0.2 percent sales growth in 2018 as MAT continues to struggle."
CFRA has a "strong sell" rating and $11 price target for Mattel.
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