18 April 2012 ~ 1 Comment

The Future’s Bright For Mattel Despite Q1 Sales Slip…

Mattel recently reported their Q1 Sales down by 2% Globally, and net income less than half of Q1 2011.

So on the face of it, that isn’t great, especially because some of their critical Core Brands were also down, inc. flagship powerbrand Barbie.

Should we therefore see this as the beginning of a significant downward trend?

Hell no!

Aside from the outside factor of ongoing Global financial chaos and it’s impact on consumer spending, Mattel is doing some really good things from a Strategic, Brand and Product perspective (I’ll leave in depth financial analysis to others & stick to what I know!).

Core Brands – Mattel’s own Brands account for 75% of their Sales (according to their own figures). That is a fantastic foundation for Mattel’s business. That’s 75% of their business they are in full control of, that can’t go to their competitors, and on which they aren’t paying 10% plus royalties! Even better, these power Brands are fully proven at Retail, and with no (or low) licensing royalties to pay, and royalty revenue from their own Licensing of their Brands, their ongoing position allows them to heavily invest in Marketing these cash cows.

New Brands – Frankly, Monster High has not received enough plaudits. Mattel have (so far at least), successfully introduced completely new Brand I.P. based on a completely incremental positioning and media execution. They have carved out another slice of the Fashion Dolls market, despite already owning a huge chunk of it with Barbie. And the best is yet to come, as the Brand evolves and rolls out globally, and it’s internet footprint grows. As of the time of writing this, Monster High is the 6,171st most visited website in the USA, and 11,719th Globally. Which means they have a lot of growth ahead of them. The YouTube viewing stats are insane…i.e. c. 40-50m views by a very rough count….all of which comes before the TVC & general marketing blitz we’d expect from Mattel.

Mark my words – by the time Monster High has fully matured, it will be a true Juggernaut of an entertainment Brand, and Mattel will be laughing all the way to the bank.

HIT Acquisition – I’ve read muchos commentary on this deal, much of which focuses on the price tag….unsurprisingly, since the purchase price was reportedly a whopping $680m. And yes, as an amount that’s huge, but in terms of value, this purchase is a great deal for Mattel. Firstly, it protects a key part of their Preschool business, with no risk of the License going elsewhere in future. Secondly, as Mattel brings back the wooden range and other Categories, the sales boost will be a positive (if not explosive) factor. Thirdly, and arguably most importantly, this acquisition will boost profits substantially on an ongoing basis. Aside from the removal of 3rd party royalties on Thomas and the other Brands, Mattel also acquired a very significant Licensing out opportunity.

In short, the Hit Entertainment purchase was a high stakes, high cost deal, with multiple benefits to Mattel, providing a massive boost to long term value and opportunity. In my relatively humble opinion, this is exactly the kind of deal Mattel should be doing.

Mattel are doing many other good things right now, but these 3 are Key to long term success, and they’re performing well.

Needless to say, there is a caveat to all this…I have the luxury of not having to depend on quarterly shipments, and this industry, while famously somewhere between recession proof and recession resistant, is nevertheless not immune to the broader economic climate. My view here is expressed about the long term.

All the best

Steve

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