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Trouble in toy land as Mattel shares tumble

Mattel shares tumbled as much as 19 per cent on Friday after the toy company issued new financial forecasts that disappointed Wall Street, just a week after its well-received 2018 annual results.

The sell-off, which knocked about $1bn off Mattel’s market capitalisation, set a downbeat tone for the more than 30,000 industry professionals gathered in New York for the annual Toy Fair.

It is the latest rollercoaster ride in toymaker shares as investors attempt to gauge how Mattel and its rival Hasbro are coping with children’s changing tastes and the effects of the Toys R Us liquidation.

Shares in California-based Mattel had leapt 23 per cent last week after full-year earnings showed revenues fell less than feared over the holiday season, helped by sales of its Barbie dolls and Hot Wheels toy cars.

Yet Joe Euteneuer, chief financial officer, said on Friday that while the company expected “continued growth in Barbie and Hot Wheels” this year, it would not be “at the same extent as 2018 levels”.

In a presentation for company analysts ahead of the Toy Fair, he said Mattel expected gross sales to be unchanged from 2018 on a constant currency basis. Before the update, analysts had forecast revenues to rise 3 per cent, according to an average of estimates collated by Bloomberg.

“After multiple years of consecutive decline, achieving flat sales is a meaningful year-over-year improvement,” Mr Euteneuer said, adding that the company was in the midst of a “multiyear turnaround”.

“While there may be residual disruption in 2019 from Toys R Us, we would expect the industry to return to historical levels of growth in 2020 and beyond,” he added. “Parents will always care about the development of their children, and children will always want to play.”

Mattel said it expected rising labour costs at manufacturing plants and upward pressure on resin, zinc and packaging costs to squeeze profit margins. It guided investors towards expectations of a gross profit margin in the “low 40s” this year. Although up from 39.8 per cent last year, it compares with forecasts of almost 44 per cent, according to Bloomberg data.

Mattel also said it would face “revenue headwinds” in the first quarter from a combination of factors including the strong dollar, the absence of sales through Toys R Us, plus declines at its China business.

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