Mattel’s (MAT) New York Office Closure to Boost Cost Savings
Mattel, Inc. MAT, which remains focused on achieving cost savings, announced shutting down of its New York office. This latest move is a part of the company’s $650 million cost savings initiatives undertaken in 2017.
Per media report, as the New York office will be closed in phases it is likely to hamper nearly 100 employees. Also, Mattel plans to reshape its operations for transforming into a faster and smarter organization. To this end, in 2017, the company had stated that it expects to eliminate at least $650 million in net costs over the next two years (up from $150-$200 million estimated earlier) through portfolio simplification, organization realignment and an optimized number of product launches.
The company will thus be focusing on three key areas — commercial side of the business, manufacturing and supply chain, and IT transformation — to bring about the desired change.
Miles to go Before Investors Bet on Mattel
In the past year, shares of this Zacks Rank #5 (Strong Sell) company have declined 49.1% against the industry’s gain of 21.1%. This underperformance is likely to continue in the coming quarters. Stocks such as Activision Blizzard, Inc. ATVI, Glu Mobile Inc. GLUU and Nintendo Co., Ltd. NTDOY, which belong to the same industry, have witnessed a sharp gain of 34.1%, 60.7% and 81.9%, respectively, in a year.
Additionally, lack of innovative schemes for brand awareness and brand innovation has been hurting the company’s revenues and POS momentum. Though overall POS has been mostly positive owing to the company’s efforts to lower retail inventories, the improvement is not broad based. We need to wait for more consistent progress at all its brands.
Tighter retail inventory management also significantly affected Mattel’s fourth-quarter sales and might continue hurting revenues, going forward. Notably, the company began the year 2017 by expecting mid-to-high single-digit growth in full-year gross sales but ended the year with high single-digit decline in the same. The decrease in gross sales can be attributed to tighter retail inventory management and underperformance by major brands.
Further, costs related to marketing and promotional initiatives, cleaning up inventories and development of digital platforms are likely to keep margins under pressure, moving ahead. Therefore, the company pushed out its longer-term target of achieving the low end of the 15-20% operating margin range from 2018 until 2019.
Also, Toys “R” Us, a significant U.S. toymaker, filed for Chapter 11 bankruptcy protection, given increasing headwinds such as huge debt and heightening competition. The bankruptcy adversely impacted Mattel’s third and fourth-quarter 2017 revenues, generating almost 10% of overall sales from the toymaker.
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