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Tickers in this Article: HAS, MAT, SHLD, WMT, TGT, MVL, DIS
In an infamous animated holiday film, a mean, green Grinch steals Christmas from the community dubbed Whoville. Here in the real world, a lingering recession is about to steal Christmas from domestic toy manufacturers. Unfortunately, the second story won't have a fairytale-like ending.

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You're a Mean One, Mr. Recession
Shoppers are already expected to remain stingy gift-givers this year. According to NPD's annual holiday survey, a smaller portion of these frugal budgets is earmarked for toys; 34% of shoppers plan to purchase toys, down from 37% last year.

It's no surprise, then, that the fierce competition has already emerged in the toy aisles of major retailers. Wal-Mart (NYSE: WMT) has announced it's slashing prices on 100 toy to $10. Target (NYSE: TGT) has initiated price cuts of up to 50% on Barbie and GI Joe action figures. And layaway, which made a comeback last year at Sears (Nasdaq: SHLD), is starting to make headlines again. Toys "R" Us is already launching a layaway program for those that need a little budgeting guidance.

Perhaps the greatest rivalry of all during the holidays actually exists between the toy manufacturers themselves. Hasbro (NYSE: HAS) and Mattel (NYSE: MAT), the two main contenders, offered a preview of who's in the lead heading into the holiday season in their recently issued third-quarter reports.

GI Joe vs. Barbie
While both have strong presence on the Toy's "R" US 2009 Holiday Hot Toy List, Hasbro appears to be the frontrunner so far. Hasbro's revenue slipped 2% in comparison to Mattel's 8% sales drop. Both companies leveraged anemic top lines with impressive cost cutting and operational streamlining, but Hasbro's efforts led to an 11% earnings increase while Mattel's bottom line decreased by two cents per share.

Beyond the headline numbers, Hasbro possesses superior qualitative aspects as well. Despite economic woes, the company is committed to investing in its future. Management is continuing to secure top notch partnerships with companies like Disney (NYSE: DIS) and Marvel (NYSE: MVL) and is exploiting its joint venture with Discovery Communications.

Hasbro Set for Success
And while both companies are focusing on value-oriented products and stripping out higher-ticketed items this year, Hasbro's overall portfolio of toys is more appealing to the strapped consumer. The company's games and puzzles segment should be particularly popular among parents seeking to save money by giving gifts the entire family can enjoy.

Boasting such strong qualities, Hasbro's annualized five year history growth topples Mattel's growth. It also generates higher ROE. Still, both companies sell at roughly 14-times forward earnings, suggesting that on a relative comparison basis, Hasbro is undervalued.

Bottom Line
The holidays will be far from festive for toymakers. Aside from the possibility that shoppers will impulsively whisk toys off of shelves in fear of limited inventory levels, sales will likely be anemic the next few months. That said, investors getting into the holiday spirit and seeking to play off of the seasonal trends should put Hasbro on their stock wish list. (For more, see Analyzing Retail Stocks.)

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