Mattel Sees Holiday Quarter Sales Hurt By Key Retailers' Inventory

Mattel (MAT) warned in a regulatory filing that fourth-quarter gross sales may be negatively impacted by tighter inventory management at key retailers. This comes not long after Toys R Us filed for bankruptcy to help the toy retailer relieve itself of debt left.

TIGHTER INVENTORY AT KEY RETAILERS: In a regulatory filing, Mattel stated: "Based on preliminary quarter-to-date data for the fourth quarter, Mattel currently anticipates its gross sales during the fourth quarter of 2017 will continue to be negatively impacted by key retail partners moving toward tighter inventory management and by challenges in the Toy Box and certain underperforming brands. Due to these factors, Mattel expects its full-year 2017 gross sales will decline by a percentage in at least the mid-to-high single digits compared to 2016... The unfavorable year-over-year gross margin experienced during the first nine months of 2017 is expected to continue throughout the fourth quarter of 2017, as a result of unfavorable product mix, higher freight, and logistics expense, and lower fixed cost absorption. In addition, continued negative trends in top line performance for the balance of the year could result in additional gross margin deterioration as a result of higher inventory write-downs and discounts offered to clear inventory. Mattel's advertising and promotion expenses in the full year 2017 are expected to be slightly higher than the full year 2016 on a gross dollar basis. In addition, Mattel's other operating expenses for the fourth quarter of 2017, excluding severance expenses, are expected to be higher than the fourth quarter of 2016. As a result of these items, Mattel's operating income margin, excluding severance expenses, for the fourth quarter of 2017 is expected to be significantly lower than the fourth quarter of 2016. In addition, gross margins and operating income could be further impacted by fourth quarter charges or expenses, including restructuring and other non-cash write-offs, which could be material, incurred in connection with its recently announced cost savings program, which is targeting run-rate cost savings of at least $650M."

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