Beyond 'Barbie': Mattel delivers jolt of reality ahead of rival toy makers' results

By James Rogers

Mattel's second-quarter results provided a jolt of toy industry reality amid all the 'Barbie' buzz

Just as Margot Robbie's "Barbie" leaves the pink comforts of Barbie Land for the real world in the eponymous blockbuster movie, Mattel Inc.'s second-quarter results Wednesday provided a jolt of toy industry reality amid all the Hollywood buzz of recent weeks.

On Wednesday Mattel (MAT) described broader toy industry softness amid the potential boost from Warner Bros. Discovery Inc.'s (WBD) "Barbie" movie, which is enjoying huge box office success. Following the results, analysts weighed the impact of muted toy industry demand on rival toy makers Hasbro Inc. (HAS) and Funko Inc. (FNKO), which both report second-quarter results on August 3rd.

"Given weak 2Q retail sales trends, Mattel's commentary and downgrade to its toy industry outlook doesn't come as a real surprise to us," Stifel analyst Drew Crum wrote in a note released Thursday. "With that said, we can understand the inclination to be more negative on names such as Hasbro and Funko."

Mattel results: Potential 'Barbie' boost overshadowed by still-sluggish toy demand

Hasbro Inc.'s stock rose 0.6% Thursday while shares of figurine maker Funko Inc. rose 1.4%. Mattel's stock rose 5.3%.

Analysts focused on Mattel's second-quarter point-of-sale (POS) numbers as they looked ahead to Hasbro and Funko's results. "Mattel's reported POS of down high single digit % and share gains for the quarter imply worse industry performance, in line with our checks and expectations," UBS analyst Arpiné Kocharyan wrote in a note Wednesday.

The analyst pointed to Hasbro's own move tie-ins, which include a longstanding licensing deal with Marvel Entertainment. "We believe Hasbro might have seen some improvement in POS in June given better film slate YOY and robust demand for movie tie-in product by retailers," she added. "Nevertheless, we believe consumer product business might take time to fix at Hasbro and near-term investor focus remains on eOne asset sales and underlying demand for Magic the Gathering."

Related:Mattel says it wasn't just making a 'Barbie' movie, it was laying the groundwork for a film franchise

Hasbro bought the Entertainment One (eOne) TV and film business for $3.8 billion in cash in December 2019, which includes the popular Peppa Pig brand. Last year the toy maker agreed to a sale process for part of its eOne business, but said it will keep the capability to develop and produce animation, digital shorts and scripted TV and films.

Part of Hasbro's Wizards of the Coast and Digital Gaming subsidiary, "Magic: The Gathering" is a hugely popular card game. Last year some analysts had worried that the toy maker was flooding the market with excess "Magic: The Gathering" cards, although demand remained robust earlier this year.

D.A. Davidson analyst Linda Bolton Weiser noted that toy industry POS "softened considerably" in the second quarter. "MAT's POS was down high-single digits (down low-single digits in 1H23), which was better than the industry," she wrote.

Related:Barbie parent Mattel says COO Richard Dickson is leaving Aug .3

Hasbro's stock has risen 5.7% in 2023, compared with the S&P 500 index's gain of 19.8%. Of 12 analysts surveyed by FactSet, nine have a buy rating and three have a hold rating for Hasbro.

Shares of Funko are down 31.5% this year. Of five analysts surveyed by FactSet, one has a buy rating, three have a hold rating, and one has a sell rating for the toy maker.

Tomi Kilgore and Bill Peters contributed.

-James Rogers

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07-27-23 1025ET

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