Shares of Mattel, the world's biggest toymaker, cratered as much as 24% after hours after the company announced it would suspend its quarterly dividend starting in Q4, and instead use the cash to shore up its faltering business after a big hit following the bankruptcy of its largest retailer Toys‘R‘Us. A quarter of Mattel's market cap was wiped out after earnings, which were disappointing even without the dividend news. The suspension of its quarterly dividend of 15 cents a share is expected to save Mattel a modest $50 million per quarter.
”Our Q3 performance was clearly disappointing, led by compression in North America, driven by Toys‘R‘Us filing for bankruptcy, tighter retailer inventory management and challenges with certain underperforming brands,” Mattel’s CEO Margo Georgiadis said. Earlier in the year, Mattel had decided to cut its dividend payout by more than 60%, as part of a management overhaul that saw the replacement of the former CEO and veteran Finance Chief Kevin Farr last month. Georgiadis, who joined the company in February, plans to reduce expenses by $650 million over the next two years - up from a $200 million projection in June. Which means that in addition to the dividend cut, the company will be slashing headcount next.
Even before the dividend cut news, the company was poised for a tumble: net sales fell 13% to $1.56 billion in Q3, a huge miss to consensus estimates of $1.81bn, hurt by weak demand across its core categories such as Barbie, Hot Wheels, Thomas & Friends and Monster High. Meanwhile, after the Toys"R"Us bankruptcy, the bottom fell out of the company's operations, and Mattel posted a net loss of $603.3 million, or $1.75 per share, in Q3 compared with a profit of $236.3 million, or 68 cents per share, a year ago.
Mattell blamed the Toys‘R‘Us bankruptcy, as well as higher freight expenses for Mattel’s gross margin collapse, which fell 7 percent in the quarter. The bankrupt toy retailer was the biggest distributor of Mattel product and contributed 11% to Mattel’s revenue in 2016; it owes over $135 million in the form of unsecured, prepetition claims to Mattel.
Earlier in the day, Mattel's smaller rival Hasbro, which reported much better quarterly results, also said it expected a weaker holiday quarter, and pinned the blame to the toy retailer’s bankruptcy.
After today's plunge, Mattel's stock has dropped to the lowest level since the market's lows in March 2009.