Why Shares of Mattel, Inc. Were Falling Today

What happened

Shares of Mattel, Inc. (NASDAQ: MAT) were taking a dive today after the toy maker posted a disappointing second-quarter earnings report.

As of 11:26 a.m. EDT, the stock was down 8.4%.

So what

The Barbie maker missed estimates on the top and bottom lines. Net sales were up 2%, or 3% in constant currency, to $974.5 million, below the analyst consensus at $979.7 million. Gross margin compressed by 430 basis points due to higher royalty expenses, change in product mix, lower licensing income, and higher product costs. As a result, the company's adjusted loss per share expanded from $0.02 a year ago to $0.14. That was worse than expectations of a loss of $0.09 a share.

CEO Margo Georgiadis said the company's key brands -- Barbie, Hot Wheels, and Fisher-Price -- showed strength, and that Mattel was moving quickly to activate its strategic plan announced last month. That approach includes accelerating growth in emerging markets, strengthening innovation, and building key brands into connected play systems and experiences.

Now what

Mattel's slide today follows a sell-off in Hasbro (NASDAQ: HAS) shares earlier this week, which could indicate overall weakness in the toy industry. However, Mattel has severely underperformed its chief rival over the past year, and has consistently missed its own guidance as profits have come in significantly below estimates for three quarters in a row.

The company reiterated guidance of low-single-digit sales growth for the full year, which it said would be more weighted toward the fourth quarter. Management also said gross margin would continue to fall on a year-over-year basis, but improve sequentially.

With that guidance, Mattel stock is unlikely to bounce back this year, but the company's stable of strong brands should aid its longer-term recovery.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool has a disclosure policy.