Disappointing sales forecasts from Hasbro Inc. and Mattel Inc., the largest US toymakers, are adding to concern that the upcoming holiday shopping season will be far from cheery.
Investors are looking to the crucial stretch from next month’s US Thanksgiving holiday through year-end to revive the performance of consumer-focused stocks, which, broadly speaking, have trailed the overall market this year. A basket of 78 retailer shares has slid about 3% in 2023, while the S&P 500 Index has climbed around 8%.
Mattel, which makes Barbie dolls and Hot Wheels cars, and Hasbro, the maker of Nerf guns and Transformers toys, signaled this week that the key shopping period isn’t looking great, with both effectively lowering expectations for this quarter. They face the same challenges as other consumer-focused companies: elevated inflation and high borrowing costs are squeezing household budgets and curbing spending on non-essential items. The resumption of student loan payments this month for millions of Americans hasn’t helped either.
“My view on the holiday season was already getting more negative before Mattel and Hasbro reported, and now it is even more negative,” said D.A. Davidson & Co. analyst Linda Bolton Weiser.
Mattel slumped 7.6% on Thursday in the worst one-day drop since February, before stabilizing Friday. Hasbro, meanwhile, plunged 12% Thursday, the most since March 2020, and is on track to extend that slide.
To be sure, prognosticators have been banging on about the health of the American consumer for most of the year, and demand continues to hold up. Thursday data showed the economy expanded at a white-hot 4.9% annual rate last quarter, while a Friday report indicated a pickup in consumer spending in September. But cracks have started to emerge — the savings rate is declining and Bloomberg Economics expects consumer spending will slow this quarter.
Read more: Slump in Big Purchases Clashes With Macro Data’s Strong Consumer
Mattel and Hasbro are also wary of shoppers’ ability to shell out for toys in the next couple months. Mattel maintained its full-year sales forecast on Wednesday even though its third-quarter results blew past Wall Street’s expectations thanks to the success of the Barbie movie. The company blamed tougher toy-industry conditions after pandemic-fueled spending faded and a weaker global economy. Hasbro struck a similar tone Thursday, slashing annual projections for revenue and adjusted operating margin.
Mari Shor, senior equity analyst with Columbia Threadneedle, expects demand for the likes of toys, electronics, home furnishings and sporting goods to continue to revert to more normal levels following a pandemic-fueled boom.
For the retail industry, “there are more headwinds than tailwinds at this point, even as inflation has moderated and the jobs market remains relatively and historically strong,” Shor said in a media presentation this week. “I would describe the consumer as stretched.”
Last month, Deloitte projected that US holiday retail sales will increase from 3.5% to 4.6% in 2023, down from last year’s 7.6% pace. Meanwhile, Adobe Analytics anticipates pinched consumers will lean on buy-now-pay-later services more than ever this holiday.
“We have a cautious outlook on the holiday,” Hasbro Chief Executive Officer Chris Cocks said on the company’s earnings call. “Anyone who says they know how the holiday is going to go, they must have a crystal ball because this has been a tough one to predict.”
Fresher reads on the consumer are due in the weeks ahead: Retailers including Walmart Inc., Target Corp. and Best Buy Co. are scheduled to announce results in November.
--With assistance from Matt Turner.