One of the characteristics that helps Mattel, Inc. (NASDAQ:MAT)’s success is its strong brand recognition, being the manufacturer of premier toys such as Barbie and Hot Wheels. Furthermore, the acquisition of HIC Entertainment will enable Mattel, Inc. (NASDAQ:MAT) to retain and expand its toy licenses.
As for initiatives, the Global Cost Leadership Program, initiated in 2008, and Operational Excellence 2.0 proved to be successful at reducing costs. For that reason, the company decided to carry out Operational Excellence 3.0 during 2013 and it is expected it will benefit the company saving $150 million. These savings will help expand its gross margin, which has been improving for four years in a row. Earnings will be boosted as well thanks to Mattel, Inc. (NASDAQ:MAT)’s optimization of its entertainment alliances with powerhouses such as The Walt Disney Company (NYSE:DIS), Pixar and Nickelodeon.
The strong balance sheet has enabled Mattel, Inc. (NASDAQ:MAT) to enhance shareholder value, repurchase shares, distribute dividends, and to pursue growth opportunities. These are all good signs for investors. After observing the company’s strategy related to saving, expanding, building new franchises and strengthening traditional brands, I believe Mattel will manage to keep profiting despite the current situation.
Pressured by low sales
Compared to the other two companies, JAKKS Pacific, Inc. (NASDAQ:JAKK) is a fairly new company, being founded in 1995. Its segments are traditional toys, craft/activity/writing products, and pet products.
The company’s revenue for the first quarter of 2013 grew 6.4% year over year to $78.1 million. However, its gross margins suffered a significant drop of 29.9% mainly due to increasing operating and marketing costs. In addition, loss per share reached $1.26, more than doubling the loss in the year-ago quarter. The company’s efforts might not be enough to reverse its situation.
JAKKS Pacific, Inc. (NASDAQ:JAKK) is suffering a lack of demand in some of its key products. Some new major products, such as Monsuno and Winx Club, didn’t have the success the company expected, increasing inventories. Moreover, in the short term there is only one significant launch, Dreamplay products, which if successful, will impact profits only a few quarters from now. I expect that the next quarter will show the same pattern, as it is seasonally weak.
Conclusion
Both Mattel and Hasbro, Inc. (NASDAQ:HAS) are showing healthy balance sheets and good strategies for the short and long run. I think they are capable of dealing with age compression and the economic crisis that is impacting sales. The strongest initiative for Mattel is its partnerships with household names in the entertainment industry, which, combined with its successful bottom-line improvements, should work well. As for Hasbro, long-term alliances in the digital world and its expansion in emerging markets will provide a good outlook for the future.
On the other hand, I would recommend to sell JAKKS Pacific, Inc. (NASDAQ:JAKK) shares, considering the company’s short-term difficulties. Margins are diminishing, and there are no novelties in its product launches that could help boost demand anytime soon.
The article Toy Manufacturers: 3 Picks originally appeared on Fool.com.
Louie Grint has no position in any stocks mentioned. The Motley Fool recommends Hasbro and Mattel. The Motley Fool owns shares of Hasbro. Louie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
