Baby Yoda and Barbie signal opportunity for Mattel

Mattel Inc. sees opportunity in soft, stuffed “plush” toys, a $2.4 billion category that’s currently occupied by the blockbuster Baby Yoda doll, which was the largest pre-sell in the company’s history.

Mattel MAT, -4.15%  hosted an analyst meeting over the weekend at the 2020 Toy Fair in New York City in which Chief Operating Officer Richard Dickson said the company is now looking for opportunities in its own intellectual property to grow this “whitespace” category.

Previously, the company relied on licensed opportunities.

“[W]e see new potential with both our own IP and partner IP and a new capability to help grow our entertainment partnerships,” Dickson said during the event, according to a FactSet transcript.

“There is no greater proof than the phenomenon called The Child from Disney’s DIS, -3.62%  The Mandalorian also known as Baby Yoda. We created this hit plush in just three weeks. And the results have been epic.”

Dickson said additional Star Wars plush toys are on the way, along with Minions from the “Despicable Me” franchise.

Overall, the dolls category was up 7% in 2019, with Barbie growing 9%, reaching a six-year sales high, the company said.

“Last year, more than half of all Barbie dolls sold represented diversity, both growth the size of Barbie collections and bringing new consumers to the brand,” Dickson said.

Among the early successes for Barbie in 2020 are Barbie Color Reveal, a doll that reveals its skin tone and other features with water, and Breathe With Me Barbie, a wellness doll created in partnership with the meditation app Headspace.

“Perhaps the key takeaway from Mattel’s Toy Fair meeting was the company’s more upbeat tone against an overall cautionary consumer landscape,” wrote UBS analysts.

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Earlier this month, Mattel reported fourth-quarter net income of $200,000, or flat earnings per share, down from $9.6 million, or 3 cents per share, in the prior year. Adjusted EPS of 11 cents blew past the penny-per-share FactSet consensus. Sales fell 3% year-over-year to $1.47 billion from $1.52 billion and were below the $1.50 billion FactSet guidance.

UBS rates Mattel stock neutral with a $13 price target.

Mattel stock is down 15% for the past year.

On the topic of coronavirus, Mattel said its China manufacturing facilities reopened on Feb. 17 after a two-week closure.

“The situation remains fluid, and our supply chain and commercial organizations are working to mitigate the disruption,” said Chief Executive Ynon Kreiz.

Hasbro Inc. HAS, -4.68%  executives said the impact of coronavirus “has been small” but will increase the longer it takes to contain the outbreak.

“We are working to mitigate the impact of our manufacturing partner factories being closed longer than anticipated, as well as to reschedule the shipments we’ve not been able to make,” said Hasbro Chief Financial Officer Deborah Thomas at that company’s investor meeting, which also took place at the annual toy fair.

“However, this is a historically smaller revenue quarter to us,” she said, according to a FactSet transcript.

D.A. Davidson analysts note that Hasbro has reduced its manufacturing reliance on China, with about 66% of products produced there in 2019 compared with 85% in 2012. The company aims to reduce the reliance further, to 50%, over the next few years.

“The three executives at Davidson’s private toy company lunch said that holiday production would not be impacted as long as Chinese facilities are fully operational in the first week of May,” analysts led by Linda Bolton Weiser said.

D.A. Davidson rates Hasbro stock buy with a $130 price target, down from $139.

Hasbro is scheduled to announce first-quarter earnings on April 27. Hasbro reported better-than-expected fourth-quarter profit on Feb. 11.

Hasbro plans to focus on entertainment beyond traditional toys, with 750 hours of TV content coming in 2020. UBS analysts say there’s upside to the initial synergy guidance of $130 million, issued last year after Hasbro acquired Entertainment One, home to names like Peppa Pig.

“The acquisition of eOne expands our mix of revenue and profit beyond animated TV to drive toys and games into live action TV and film as well as music and location-based entertainment,” said Hasbro Chief Executive Brian Goldner, according to a FactSet transcript.

The company will also focus on Nerf, the company’s largest brand, which just recently launched an Ultra line that includes patented darts that fly 120 feet, the farthest ever.

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“We plan to invest $200 million to $300 million over the next five years across multiple titles and platforms to create unparalleled gaming experiences with superior operating margins,” said Goldner.

Hasbro is down 3.7% over the last year.

The S&P 500 index SPX, -3.03% is up nearly 12% over the past 12 months.

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