There is no Christmas cheer on toy and game sales ahead of the holiday, according to Jefferies.
A team of analysts led by Andrew Uerkwitz advised clients that “sentiment remains terrible as investors brace for the potential for more headline revisions” in December. He added that while there are pockets of strength in Lego, Hasbro’s ( NASDAQ: HAS ) Magic: The Gathering, and Mattel’s ( NASDAQ: MAT ) Barbie dolls, the overall channel checks suggest sharp deceleration. The negativity on sales comes even as promotions abound with retailers attempting to clear inventory.
Still, the weakness is not surprising those that have been eyeing the space.
“If the next two weeks don't show meaningful improvement, Street estimates may prove to be too high, but buyside sounds nearly there,” Uerkwitz commented. “We see limited downside from here on adequate multiple reset & investor interest looking for a bottom. We do worry about the lack of near-term catalysts to break the current trend.”
In terms of toy retailers, Target ( TGT ) was touted as superior to Walmart ( WMT ). Meanwhile Mattel ( MAT ) is seeing stronger sales than Hasbro ( HAS ) in the holiday season, according to Uerkwitz. Funko ( NASDAQ: FNKO ) results were “mixed” as collectible sales slow.
For both manufacturers and retailers, Jefferies sees a need for a double-digit sales acceleration in the two weeks prior to Christmas in order to clear bloated inventory.
“While [advertising and promotional spend] has accelerated into Black Friday & early August, the aggressiveness of discounts may still be too weak,” Uerkwitz concluded.
Nonetheless, Jefferies maintained Buy ratings on Hasbro ( HAS ), Target Corp. ( TGT ), and Walmart ( WMT ). Jakks Pacific Inc. ( JAKK ), Mattel ( MAT ), and Spin Master Corporation ( TOY:CA ) were kept at Hold.
Read more on Magic: The Gathering sales trends for Hasbro .
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Toy sales sentiment ‘remains terrible’ into holiday shopping season - Jefferies