Sector financial performance:
This company, which primarily designs, produces (third party), markets, and distributes toys, consumables, electronics, and kids’ furniture, has been grouped into toys sector in toys and gaming industry.
It seems that the demand for traditional toys provided by companies in this sector has been declining (excluding effect of toys “R” us) in matured markets. However, demand for value-added toys, including those using high technology and popular story related brands, seems to be stable. Emerging market may present one of options for these toys’ companies to maintain their growth.
While it may not significant for Toys “R” us’ liquidation to impact companies’ sales, it already causes direct impact on many companies’ profit margin in 2017 and 2018. The typical gross margin is about 37% and with a SG&A as percentage of sales of 39% the operating margin is about -3% in 2018. The typical enterprise price/sales ratio is 1.6.
Company performance:
It seems that the demand for toys products of this company has been declining in both North America and Europe in the past several years as indicated by the declining unit sales.
The first three months of fiscal 2018 compared with the same period of 2017 (ended March 31 2018)
Net revenue decreased about 1.5% attributable to decrease in international revenue.
Fiscal 2017 compared with fiscal 2016
Net revenue decreased about 13% attributable to decrease in North America and international revenue.
Fiscal 2016 compared with fiscal 2015
Net revenue decreased about 5% attributable to decrease in international revenue.
Its gross margin went down from about 31% to 24% in 2018 due to impairment of inventory. With the increased SG&A as percentage of sales (up from 27% to 36% due to decreased revenue and increased expenses), we see a significant decrease in its operating margin (down to -12% in 2018). Its average EBI/share decreased significantly in the past three years.
Stock performance
This company is having an enterprise price/cash flow ratio of 20 (excluding temporary impact on earning of toy “R” us). We think that its stock is being relatively fairly valued compared with its peers MATTEL, INC.
