Mattel, Hasbro Could Win As Toy Retailers Scramble to Stock Up for Holiday

Toy retailers delayed third-quarter orders due to trade uncertainty and concerns about consumer spending. Now they are playing catch-up. (Joe Raedle / Getty Images)

Mattel and Hasbro , two of the country’s largest toy makers, recorded weaker third-quarter toy sales in North America, which company executives blamed on changes in retailers’ order patterns due to shifting trade policy. With toy retailers now rushing to place delayed holiday orders, both companies have an opportunity to reclaim lost revenue.

Mattel’s sales in the region fell 12% from the year-ago quarter, while revenue from Hasbro’s consumer-products segment declined 8%.

Mattel’s Chief Financial Officer, Paul Ruh, broke down the trade dynamics on the company’s earnings call Tuesday. Typically retailers buy their end-of-year products early in the year, taking ownership of the goods in the country of origin and handling importation and warehousing themselves. That bolsters their margins by eliminating the need for an external logistics network, but it can take longer and require companies to place larger orders.

Given the uncertainty this year around both trade policy and consumer demand, many retailers delayed placing orders, Ruh said. Likewise, they turned to manufacturers, including Mattel, to handle any importation and warehousing, taking ownership after the goods were in the destination country—a practice known as domestic shipping. “It’s a more ‘just-in-time’ approach and with a more frequent order mechanism,” Ruh said.

With consumer demand strong and trade policy now less in flux, retailers are hurriedly stocking up ahead of the holiday season and have placed more domestic shipping orders than usual, Mattel and Hasbro said. Many retailers saw solid demand throughout the second and third quarters.

“We are seeing a significant increase in retail orders,” said Mattel CEO Ynon Kreiz. “The reason is because they are seeing the same thing—they expect strong demand for the holiday, and are restocking.”

In reporting third-quarter earnings, Mattel maintained its full-year guidance for sales to increase between 1% and 3% from last year, while Hasbro increased guidance slightly. It now projects sales will rise by high single digits, compared with July’s forecast for a mid-single-digit increase.

Mattel earned $1.62 a share last year on total revenue of $5.4 billion; Hasbro reported $4.1 billion in revenue, and $4.01 in per-share earnings. Analysts expect Mattel to earn $1.59 a share this year, and Hasbro, $4.93, according to FactSet consensus estimates.

The risk is that orders don’t accelerate enough to meet toy makers’ guidance, writes Keegan Cox, an analyst at D.A. Davidson. That could be particularly troubling for Mattel, which is more dependent than Hasbro on toy sales to drive revenue. Still, Cox calls Mattel “well positioned” to meet demand, with significant inventory already shipped to the U.S. and ready to enter retailers’ supply chains.

Hasbro executives said the company has appropriate inventories to fulfill end-of-year demand. But Hasbro is less reliant on toys than Mattel, due to its Magic: The Gathering card game and offshoots.

Magic: The Gathering and the broader Wizards of the Coast business have been profitable for Hasbro. Segment sales increased 42% year over year in the company’s latest quarter, and operating margins were 44%. The continuing strength of the Wizards business has propelled Hasbro shares nearly 40% higher this year, to a recent $77.52, outstripping Mattel’s 8% gain, to $18.72. Hasbro also commands a higher price-earnings ratio of 15.2 times next year’s earnings, compared with Mattel’s 11 times estimates.

“[Wizards of the Coast’s] outsized contribution and margin resilience insulate HAS from cyclical pressures,” wrote Jefferies analyst Kylie Cohu in a research note Friday. “We continue to view HAS as a top pick in the toy space, with upside to guidance if [Magic: The Gathering] momentum persists and consumer products executes on its turnaround.”

That said, both stocks trade below the S&P 500’s 23.6 P/E ratio, reflecting investor concerns about how tariffs will affect the toy industry. According to The Toy Association, an industry trade group, a little under 80% of all toys sold in the U.S. are made in China. The new levies are already weighing on Hasbro and Mattel’s margins, but are “likely to play a bigger role in the fourth quarter” and beyond, Cox wrote.

Both companies raised prices modestly earlier this year to offset the tariffs. The next test for the toy industry will be how long consumer demand holds up if companies need to increase prices further. Hasbro CEO Chris Cocks noted that buyers so far haven’t been scared away by higher prices. The company will decide on a course of action for 2026 after assessing how consumers respond to the holiday season.

Wall Street is bullish on shares of Hasbro and Mattel, with 81% and 75% of analysts rating each stock a Buy, respectively. The companies’ holiday performance could determine whether analysts remain upbeat, and investors grow more so.

Write to Sabrina Escobar at sabrina.escobar@barrons.com