Toymaker Mattel said it would miss its full-year revenue forecast and decided to stop dividend from the fourth quarter to beef up its faltering business that has been hurt by the bankruptcy of its largest customer Toys’R’Us.
Shares of the company, which reported weaker-than-expected quarterly results, fell as much as 25 per cent in after-market trading.
“[For the] full year, we will clearly not achieve the top line expectation we discussed in June,” Mattel’s chief executive Margo Georgiadis said.
The world’s largest toymaker had forecast mid-to-high single digit revenue growth for the medium term in June.
Mattel has been struggling with lagging sales for four of the past six quarters
Mattel has been struggling with lagging sales for four of the past six quarters and is facing an inventory glut amid weak demand for its core brands from retailers.
Key retail partnerships for its brands such as Thomas & Friends and Monster High were 15 per cent to 20 per cent lower than in 2016, Georgiadis said on the call. Under Georgiadis, who became the CEO in January, Mattel is trying to free up funds and save at least $650 million in net costs over the next two years.
The company replaced its veteran finance chief Kevin Farr last month and decided to cut its dividend payout by more than 60 per cent.
The latest suspension of its quarterly dividend of 15 cents a share is expected to save $50 million per quarter, the company said.
The company said the bankruptcy of Toys’R’Us resulted in half of the decline in its North America revenue and most of the seven per cent fall in gross margins.
The toy retailer, which filed for bankruptcy in September, contributed 11 per cent to Mattel’s revenue in 2016. Toys’R’Us owes creditors $5 billion with Mattel exposed to about $135 million in unsecured claims for payment.
However, the retailer is set to receive $3.1 billion debtor-in-possession financing, which is likely to help the Toys’R’Us pay some of its suppliers such as Mattel and keep 1,600 stores in operation for the crucial holiday season.
Rival Hasbro and Jakks Pacific too were impacted by Toys’R’Us going out of business.
Net sales fell 13 per cent to $1.56 billion in the third quarter ended September 30, while the company posted an adjusted profit of nine cents per share.
Analysts had expected revenue of $1.81 billion and adjusted profit of 57 cents, according to Thomson Reuters.