Mattel Inc. Stumbles as Investors Put Their Faith in New CEO

By Motley Fool Staff Markets Fool.com

In this segment from Motley Fool Money, Chris Hill andJason MoserunwrapMattel's (NASDAQ: MAT)first quarter report to find a lump of coal. The company's heavy post-holiday discounting (following a weak holiday season) significantly hurt profits. The company's new CEO has a lot of work cut out for her, as Mattel's legacy brands have gone stale.

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A full transcript follows the video.

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This video was recorded on April 21, 2017.

Chris Hill: Shares ofMattel hitting their lowest point in over a year after a first quarter loss that was much worse than expected. Jason,they had a bad holiday quarter, andthey did so much discounting after the holidays, that's what showed up in this report.

Jason Moser: That's right. It'sreally hard to get worked up for this business these days. Mattel is justvery much a company in crisis. I think new leadership andMargo Georgiadis was sorely needed, butI'm afraid she's not the answer alone. I think Mattel is facing a bigger crisis insome of the brands that they have in their portfolio, some of the brands that havereally been responsible for so much of the strength of the company in past years --American Girl dolls,Monster High, those arefranchises that are now turning on them andreally becoming sort of a drag on the company's performance.

We talked about this before withMattel andHasbro.Really, the key for these businesses is figuring out a way to hitch to the bigger players out there that have the IP, likeDisney,for example. That's the easiest example. We talked about Hasbro striking gold with that new princesses deal, andI think that's going to pay off for years and years to come. Conversely, when we look at Mattel's conference call, they're talking about this big release for Cars 3 next quarter.I'm sorry, Cars 3is a pretty successful franchise, but it doesn't hold a candle toprincesses and Star Wars. What Mattel is realizing now isunderinvesting in the business and chasing some of those opportunities is really going to hamper them for some time to come.

To your point aboutinventory, gross margin fell almost seven full percentage points this quarter because of that glut of inventory theyhad to unload after the holiday season at rock bottom prices. That's just Retail 101 right there --when you see retailers doing that, those are red flags, and Mattel is full of them.

Hill: Yeah. Although, Georgiadis, she's been CEO for about an hour and a half. Youhave to give her a little bit of time.

Moser: Right. I think we've talked aboutthat before on Market Foolery, maybe. Youreally have to give her a year to get this planestablished and to see if the company canactually gain some traction with it. But, man,I tell you, she has her work cut out for her.

Chris Hill owns shares of Walt Disney. Jason Moser owns shares of Hasbro and Walt Disney. The Motley Fool owns shares of and recommends Hasbro and Walt Disney. The Motley Fool has a disclosure policy.