As Toy Sales Soar During The Pandemic, Mattel Falls Short

U.S. toys sales soared in March, as COVID-19 closed schools and families invested in games, crafts, and outdoor toys, but that wasn’t enough to help Mattel’s second quarter.

Mattel shares fell by more than 10% in after hours trading today after reporting a wider-than-expected loss, and lower-than-expected revenues for the first quarter, with net sales down 14%.

How does that happen when U.S. toy sales had a blockbuster first quarter? As Mattel sales were dropping, overall U.S. toy sales rose 7.6% during the quarter, according to The NPD Group, which tracks toy sales.

Here’s how: When parents and stuck-at-home-consumers rushed to buy toys and games in March, they weren’t buying what Mattel was selling.

While sales of games, crafts, puzzles, and outdoor toys skyrocketed in March, those categories aren’t Mattel’s strong suits.

“Consumer demand shifted to other toy categories where we have a smaller presence,” said Ynon Kreiz, Chairman and CEO,

Even with the Uno card game, one of the best-sellers of the pandemic purchasing surge, in its portfolio, Mattel still came up short.

The categories Mattel traditionally depends on to drive sales – dolls and infant and toddler toys, saw industry-wide declines while other categories were booming, Kreiz said.

The category shift hurt Mattel, which saw its North American sales drop 17 percent during the quarter, but benefited its top competitor, Hasbro
HAS
, which enjoyed a 20% jump in sales in the United States and Canada during the quarter.

Even without the impact of the COVID-19 crisis, Mattel has been playing catch-up for several years to Hasbro when it comes to winning the love of Wall Street.

Mattel’s stock closed at $8.60 Tuesday, while Hasbro was trading more than eight times higher, at $67.

Despite having iconic brands like Barbie and Hot Wheels, Mattel has faltered over the past five years, experiencing several rapid leadership changes, and taking on debt as it made acquisitions.

Kreiz, who became Chairman and CEO in 2018, has put in place a transformation plan that he says is still on track.

He expects toy buying to shift back to more typical categories in the current quarter, and said he already saw signs of that in April, when Mattel’s sales were trending up double digits.

The first quarter surge in toy sales measured by The NPD Group largely occurred at the very end of the quarter.

U.S. toy sales grew 19% between March 15 to April 18, compared to growth of only 1% for the first 10 weeks of the year.

With demand growing that much during a quarter when stay-at-home orders were in place in much of the country for less than two weeks, it’s hard to predict at this point what the second quarter will be like, with shutdowns in place for the month of April and continuing into May.

“We don’t have a real gauge yet of what this industry is going to be like when it reflects a quarter where many of the regions are on stay-at-home orders,” said James Zahn, senior editor of The Toy Insider, The Pop Insider, and The Toy Book.

Mattel could also be hurt, Zahn said, by decisions to delay movies tied to its licensed toy campaigns, such as Minions, and the new Fast and Furious movie, F9.

“There are some interesting factors here at play that literally we have never seen before,” Zahn said.

While Mattel, like Hasbro and other toy manufacturers, has seen a big increase in online sales, 30% of the brick and mortar retail stores that sell its toys are currently closed, and those stores represent a third of its revenue, Kreiz said in reporting the second quarter results.

The company is not issuing guidance for the second quarter and the rest of the year due to the pandemic. It expects sales will also be hurt in the second quarter, but will rebound in the second half of the year, with strong holiday sales.

A big holiday unknown, however, is whether American consumers will have enough disposable income to buy toys. Past history, Kreiz said, has shown that while the toy industry isn’t recession-proof, it has proven to be resilient in economic downturns, with parents sacrificing in other areas to buy toys and gifts for children.

And in one hopeful sign for Mattel, parents in this pandemic world apparently are buying Christmas-worthy toys in springtime. The Barbie Dreamhouse, a classic extravagant Christmas gift, is currently Mattel’s top selling item in the United States.