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Stock Analyst Update

CEO Exit Weighs on Mattel

We think the resignation has more to do with the business that Margo Georgiadis inherited, rather than the business worsening beyond expectations.


Narrow-moat  Mattel’s (MAT) CEO Margo Georgiadis announced her resignation, leaving the firm after just 14 months at the helm. While we don’t think the duration of her tenure was long enough to label it a success or failure, we believe it would have been nearly impossible to see meaningful improvement in the face of waning holiday season demand industrywide and the liquidation overhang of a key retailer (Toys ‘R Us represented 9% of sales at Mattel in 2017). Moreover, we think the resignation has more to do with the business that Georgiadis inherited, rather than the business worsening beyond expectations. We suspect Georgiadis anticipated the business was on the upswing when she took the reins, rather than improving from inventory shipped ahead of demand. This made some performance appear better than reality, and we believe left her with a turnaround that was more difficult than was initially conveyed.

In her absence, Ynon Kriez will be taking over as both CEO and Chairman of the board in April. Kriez previously led Market Studios, a global digital media and content network company that was acquired by Disney. His background also contains experience with Endemol Group, an independent television production company, and Fox Kids Europe. We think this deep network of digital and content connections will keep Mattel on its trajectory to building its power brands into connected 360 degree play experiences globally. Our thesis has been that top line opportunity for the toy companies stems from rising international penetration and content driven demand, arenas in which Kriez can help Mattel accelerate its exposure.

We don’t plan to alter our $21.50 fair value which includes first half 2018 sales declines of 4% and an operating margin of minus 12%, down 215 basis points from a 9% shortfall in 2017’s first half. We maintain our Standard stewardship rating, as both the board and the C-suite have been reconstituted to include industry suitable placements over the last year.

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Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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