Mattel Inc. (NASDAQ: MAT) plunges over 10.73% to $18.30 in pre session after the company forecasted 2023 earnings below analyst expectations, joining rival Hasbro Inc. in feeling the effects of persistently high inflation, which has harmed demand for toys and games.
While the toy industry has historically been more resilient to economic downturns than other discretionary sectors, Mattel reported that demand dropped abruptly and sharply in October and November, necessitating more profit-margin eroding clearance sales to clear excess inventory.
“As we enter 2023, we expect it to be a challenging environment for consumers, not just in toys, but in general, so there may be volatility,” Mattel CEO Ynon Kreiz told Reuters.
Kreiz, on the other hand, predicted that the industry would grow this year. Hasbro also forecasted lower-than-expected holiday-quarter earnings in January, and said it would cut 15% of its global workforce this year to return to a “competitive” position.
Mattel, according to Kreiz, is taking “similar measures” to save an additional $50 million this year, on top of its previous target of about $250 million.
According to Refinitiv data, Mattel’s adjusted profit for the full year is expected to be between $1.10 and $1.20 per share, falling short of analysts’ expectations of around $1.66.
In the fourth quarter ended Dec. 31, the company’s gross margin fell 630 basis points to 43%. Mattel earned 18 cents per share after one-time items, falling short of analysts’ expectations of 29 cents. Overall gross billings for Mattel’s biggest brand, Barbie, fell 33% in the quarter, while Hot Wheels rose 8%.
Total net sales fell 22% to $1.40 billion, falling short of expectations of $1.68 billion. Mattel stated that it plans to resume share repurchases in 2023, with approximately $200 million remaining under the company’s current program.
Mattel’s CFO, Anthony DiSilvestro, added: “Despite the fourth-quarter challenges, we outpaced the industry and gained market share. We improved our leverage ratio and strengthened our financial position over the course of the year. We expect to resume share repurchases in 2023, thanks to our improved balance sheet and increased free cash flow.”
