Higher costs, stronger dollar dent Mattel's margins

Higher costs, stronger dollar dent Mattel's margins

Stock Market Predictions

(Global Markets) - Mattel Inc (MAT.O), the world's largest toy company, reported a bigger-than-expected fall in gross margins, hurt by a stronger dollar and higher costs, taking the gloss off a record jump in sales of its iconic Barbie dolls heading into the critical holiday season.

Toymakers are fighting to shield their margins from a rise in the cost of raw materials like plastics and paper, and higher wages demanded by laborers in China, where a lot of U.S. companies make their toys.

Additionally, Mattel -- which gets roughly half its sales from international markets -- said a rise in the U.S. dollar against foreign currencies like the euro in September pulled down gross margins by about 180 basis points.

A stronger dollar, which brings down the value of exported goods by U.S. companies, is also likely to affect Hasbro Inc (HAS.O) when it reports results on Monday -- though the company is less dependent on international sales.

"The only issue we see with the company's results is the gross margin, which was below expectations and did not see the typical seasonal uplift from Q2 levels," MKM Partners analyst Eric Handler said.

Gross margins in the quarter fell to 47.8 percent from 51.1 percent in the year-ago period.

"If the dollar stays at current levels against the euro, it's likely to be a headwind in the fourth quarter as well," Handler said.

While margins fell, the strong sales performance bodes well for Mattel as it heads into the crucial holiday season at a time of growing economic uncertainty.

Mattel's closely awaited toys this holiday season include "Angry Birds Knock On Wood," a tabletop version of the highly popular game app for mobile phones, and the "Monster High Dead Tired" doll line that features offspring of famous monster characters themed on a pajama party.

Wedbush Securities analyst Edward Woo cautioned that the weak economic condition in Europe -- which until now have not really been reflected in toymakers' results -- could hurt sales of toys during the holidays.

"Just because the (European) economy hasn't hurt results, does not mean that it won't in the future as well ... right now, we don't know one way or the other," Woo said.

Q3 SALES BEAT

Third-quarter net income was $300.8 million, or 86 cents a share, compared with $283.3 million, or 77 cents a share, a year ago.

Net sales rose 9 percent to $2.0 billion. Barbie sales were up 17 percent in the quarter -- their highest percentage rise in more than a decade. Sales of Other Girls Brands, which include the Monster High and Disney Princess doll lines, were up 32 percent.

Analysts, on average, had expected earnings of 86 cents a share, before special items, on revenue of $1.97 billion, according to Thomson Global Markets I/B/E/S.

The company also increased its stock repurchase program by $500 million.

Mattel's shares, which have risen 9 percent this year in contrast to a 27 percent fall in rival Hasbro, were down 1 percent at $27.52 on Friday on Nasdaq.

(Reporting by Mihir Dalal in Bangalore; Editing by Sriraj Kalluvila and Saumyadeb Chakrabarty)

Read More

Groupon shares sink below $20 IPO price

Groupon shares sink below $20 IPO price

Stock Market Predictions

NEW YORK (Global Markets) - Shares of Groupon Inc fell for a third day on Wednesday, sinking below the company's initial public offering price of $20 less than three weeks after the daily deal company went public.

Groupon's shares fell 14.2 percent to $17.22 on Nasdaq, bringing its decline over the last three days to about 34 percent.

Groupon raised more than $700 million in an IPO in early November, making it the biggest IPO by a U.S. Internet company since Google Inc raised $1.7 billion in 2004.

Analysts have cited concerns about increased competition, a greater availability of the company's stock for short-selling, and a sharp reversal of market sentiment that is taking down more speculative companies.

"The momentum is negative now and it is likely to continue negative until they have something positive about the company," said Edward Woo, a Groupon analyst at Wedbush Morgan.

"There was a lot of negative sentiment heading into the IPO, the IPO surprised a lot of people, it was much stronger than expected," he said.

One reason for that strength was the fact that Groupon sold only about 6 percent of itself in the IPO, creating a scramble for the stock. It was one of the lowest floats of the past decade.

LivingSocial, Groupon's closest rival, which is part owned by Amazon.com Inc, announced plans on Monday to offer more than 20 deals with national merchants over the crucial Black Friday shopping period.

Daily deal companies often subsidize national deals, making them less profitable than offers run with local merchants. The national deals usually bring in lots of new customers, but put pressure on profit margins.

Analyst say Groupon shares were also lower because it became easier this week to short, or bet against, the company.

In the first week after the IPO, there was little stock available for short sellers, who have to borrow shares before they can sell them. If the stock drops, they can buy it back at a lower price, return the shares to the lender and pocket the difference as profit.

Woo has a price target of $22 and a "neutral" rating on Groupon's stock. He says that may come down if the stock is not able to bounce back soon.

"It is a little surprising at how quickly it's happening," said Woo. "But on the other hand the valuation was very high to begin with."

(Reporting by Edward Krudy; Editing by Chizu Nomiyama)

Read More