TSX:TOY - Post Discussion
Post by
retiredcf on Oct 22, 2021 8:42am
RBC
October 21, 2021
Spin Master Corp.
Read-through from Mattel's Q3 results
Outperform
TSX: TOY; CAD 42.25
Price Target CAD 59.00
Our View: Modest positive for Spin Master. Mattel reported Q3 revenue and Adjusted EBITDA that were ahead of consensus expectations. Q3 Net Revenue of $1,762 million (+8% YoY; +7% YoY constant currency) was ahead of consensus of $1,685 million, while Adjusted EBITDA of $463 million was ahead of consensus of $404 million. The company also increased its 2021 Net Revenue and Adjusted EBITDA guidance while leaving GM % guidance unchanged (details below). See inside for relevant commentary/trends by categories.
Below we highlight the key takeaways from Mattel's Q3 results (which were ahead of consensus expectations) and from the earnings call:
• Strong POS and upward guidance revision provide positive read- through: Mattel’s high single-digit POS growth is directionally positive for the industry as it indicates strong consumer uptake through the quarter. We are also encouraged by the increased guidance for net sales growth for full-year 2021. However, we note that the continuation of market share gains for Mattel (for the 5th quarter in a row, per management commentary) highlights some potential risk to Spin Master (where there is overlap/competing offerings).
•Retail inventories lower YoY (based on "weeks of supply"): Management noted that retail inventories were up mid single-digits YoY on a $ basis, but down low-to-mid single-digits when looking at weeks of supply (aka a decrease in "unit" count being offset by price increases).
• Inflation headwinds related to freight and resin: Higher costs related to ocean freight and resin (which together account for ~15%-20% of the Mattel's cost base) are likely to impact margins over the near- term; however, the company expects to offset this impact via price increases. Given the industry-wide freight/supply chain issues and inflation pressures, we expect Spin Master to highlight these headwinds as well (along with any associated cost reduction/pricing initiatives that mitigate the impact to some extent).
• North American retailers continuing to replenish inventories; Mixed results in other regions: Mattel noted that Gross Billings growth outpaced POS growth in North America in Q3 (Gross Billings +12% vs. HSD growth for POS), indicating that North American retailers are continuing to replenish inventories. This should be a positive for Spin Master as North America accounted for 62% and 64% of Q3 Gross Product Sales in 2020 and 2019, respectively. Mattel further noted that POS growth outpaced Gross Billings growth in EMEA and Latin America, while APAC saw declines in both metrics (albeit POS declined by less than Gross Billings). We view Spin Master's relatively smaller exposure to these regions as a positive.
• E-commerce continued to grow through Q3: E-commerce POS continued to grow for Mattel (despite brick-and-mortar improving), which bodes well for Spin Master as the company has invested in its infrastructure over recent years and has benefited from the growth in the online platforms of its major retail partners (WMT/TGT/AMZN).
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