Why Hasbro and Mattel shares are telling two different stories

Two of the world’s biggest toymakers, that were rumored to be considering a tie-up last year, are displaying two very different fortunes.

While both Mattel and Hasbro face stiffer competition from electronic gadgets, Mattel shares are down nearly 19 per cent so far this year —with the shares down 12 per cent on Friday after the California-based toymaker posted disappointing first quarter results.

Hasbro —which is slated to report results next week and likely expected to see a bump from Beauty and the Beast — has on the other hand seen its shares advance nearly 24 per cent over the same period.

So what’s prompted investors to sweeten on Hasbro and sour on its rival?

Hasbro scored a major coup when it secured a deal to begin making Disney princess dolls last year and torpedoed a long-standing partnership between Disney and Mattel.

The license gave Hasbro the rights to relaunch all of Disney’s dolls, including princesses Elsa and Anna from Disney’s animated hit Frozen, which has grossed more than $1.2bn worldwide since it hit the silver screen in 2013, according to Box Office Mojo, making it the ninth highest grossing film of all time. And the chill from the loss of the Frozen franchise was clear.

Hasbro revenues jumped 13 per cent in 2016 to $5.02bn, from a year ago, with annual sales jumping for the third straight year. By contrast, Mattel, the maker of Barbie Dolls and Hot Wheels, posted a 4 per cent drop in worldwide net sales last year to $5.5bn — its third consecutive year of revenue declines.

And it isn’t just Frozen. The success of the Star Wars films also invigorated sales at Hasbro. Meanwhile, Mattel worked to revive interest in Barbie.

Indeed, the company which had drawn criticism for years over Barbie’s unrealistic figure, launched three new Barbie body types — tall, curvy and petite — with a range of hairstyles and skin tones as part of its Fashionista line. And for a while it appeared to work with sales up in the first nine months of last year. But the crucial holiday quarter proved disappointing and management blamed inventory overhang for weaker sales in the first three months of the year.

Despite the disappointing first-quarter sales, Mattel president Richard Dickson maintained his confidence in the brand, noting the Fashionista segment continued to exceed expectations. He also added the company was continuing to engage girls by moving into episodic content and continuing the roll-out of Dreamtopia, a make-believe world imagined by Barbie’s youngest sister Chelsea — meant to build on the success of the animated TV movie that hit small screens last year.

Despite Friday’s sharp drop however, there may be reason to temper the pessimism on Mattel.

The company is looking forward to the release of Disney’s Cars 3 in the second quarter and analysts note that Justice League, Fast & Furious and Wonder Woman could be other drivers for Mattel this year.

And Tim Condor an analyst at Wells Fargo thinks that shares of toy manufacturers are positioned for longer-term growth citing “favourable global birth demographics projected through 2020, low pre-school penetration in international markets,” and likely increasing preference among global retailers for larger companies with owned and licenses intellectual property rights especially those tied to entertainment.

Moreover, the company appointed Margo Georgiadis, a former Google exec, its new CEO earlier this year. A move that some think could signal a growing focus on technology and connectivity at a time when toymakers face stiff competition from tablets, phones and other electronic devices.