2023-04-23 09:00:00 ET
Mattel ( MAT ) looks more likely to defend market share in toys than Hasbro ( NASDAQ: HAS ) amid an uncertain macro backdrop, according to UBS.
The bank’s analysts noted that elevated inventory levels at retailers throughout 2022 has prompted a less aggressive buying strategy in 2023. While consumers are still showing an appetite to spend, the growing signs of a recession arouse some caution on projecting sales as well.
“According to our checks, Easter retail picked up slightly, but not enough to clear inventory meaningfully. Retailers have taken a much more cautious view, in some cases under-ordering vs. actual demand levels,” equity analysts Arpine Kocharyan and Robin M. Farley told clients. “While some in the trade believe the retailer pendulum swings meaningfully higher in H2, given under-ordering vs. YTD demand and no recessionary behavior from the consumer as of yet, we also heard a major retailer planning purchase orders to be down 10-15% for the category for
FY'23.”
The two added that “the overarching bear thesis on toy stocks” is that a reversion to 2019 levels of demand is inevitable. If this comes to fruition, a “meaningful downward correction” in sales would result. However, the two largest firms in the space are not expected to be impacted equally amid industry deceleration.
“With industry down slightly, we expect Mattel to continue to defend share, while Hasbro's consumer product business could take time to fix,” Farley and Kocharyan commented. “Overall Mattel defended share in Q4, while Hasbro lost share, with Q1 POS below industry. Globally, buyers say shelf space momentum for Mattel remains strong, while Hasbro continued giving up shelf space in profitable brands like NERF.”
The Barbie movie is expected to provide a boost for Mattel moving forward in 2023 as well. That tailwind is abetted by the expectation of margin expansion in coming quarters.
“We see more tailwinds than headwinds for margin outlook for Mattel in 2023, with higher trade
spend and promotional environment more than offset by overall sequentially easing supply chain pressures, so overall perhaps room for margin outperformance for 2023,” Kocharyan and Farley concluded. “For Hasbro, margin performance is considerably dependent on Magic The Gathering performance for the quarter, and for the year, outside of eOne assets sales.”
That said, the two noted that the completion of an eOne sale could augment their outlook.
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Mattel better positioned for toy sales than Hasbro in 2023 - UBS