The Year In Toy Stocks

By Billy Fisher | December 27, 2011 AAA

As we move through the heart of the holiday season, toymakers are looking to reap the dividends of consumer shopping activity. So far it appears that they have managed to release some notable hit products, but the competition for holiday dollars in an otherwise tight economy has been fierce. Here is a look at the year in toy stocks as investors prepare to ring in the new year. (For related reading, see 5 Most Profitable Toys Of Past Christmases.)

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Making the Leap
One of the more remarkable stories in the industry this year has been that of LeapFrog Enterprises (NYSE:LF). Until the release of its new LeapPad, an educational tablet for kids, on June 29, the company saw its stock price down around 24% on the year. The tablet's release has completely revitalized LeapFrog's fortunes and has lit a fire under its stock price.

The tablet sold out of pre-sale units in its first two weeks and has made a notable impact on the company's bottom line. In Q3, the company's income from operations rose 54% on a year-over-year basis on a 9% improvement in net sales. Shares of LF have surged around 44% since June 29 when the LeapPad became available for pre-sale on major retailer websites.

The prospects in the short term for the similarly sized small cap JAKKS Pacific (Nasdaq:JAKK) are not as bright. The company, which makes Pokémon products, recently was forced to cut its earnings guidance for the year as it has suffered from weak holiday sales, which have in turn brought about an increase in markdowns. JAKK shares have fallen approximately 24% year-to-date.

Household Names
Shareholders of Mattel (Nasdaq:MAT) have welcomed the success that the company has had with its portfolio mix, which includes old-school brands such as Barbie and new-school names such as Fijit Friends. In Q3, worldwide sales of the Barbie brand were up 17% over the prior year quarter. The company's entertainment business segment has also been prospering thanks in part to its CARS 2 franchise.

Not only is Mattel appealing from an operational standpoint, it also pays out a healthy dividend. The company's Q4 dividend is 11% above last year's payout, and its stock presently carries a 3.4% dividend yield. Shares of MAT have risen around 8% since the beginning of the year.

Over the past year, Hasbro (Nasdaq:HAS) has been struggling to keep the growth of its board game sales on an upward trajectory, but it has been adapting to a changing landscape. The company has made strides in building its customer base in recent years with a foray into digital gaming through relationships with Activision Blizzard (Nasdaq:ATVI) and Electronic Arts (Nasdaq:EA). However, Hasbro's licensing revenue represents only 5% of its profit so far. HAS shares have cratered to the tune of around 28% in 2011. (To learn more, read Power Up Your Portfolio With Video Game Stocks.)

The Bottom Line
It has been a cutthroat marketplace for toymakers in 2011. With consumer confidence still on the mend, these companies have had to dig deeper and deeper into their bags of tricks to find ways to grow. Of the companies mentioned in this article, LeapFrog and Mattel seem to have the most momentum heading into 2012. In this industry, though, the balance of power can change almost on a moment's notice. (For related reading, see Analyzing Retail Stocks.)

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At the time of writing, Billy Fisher did not own shares in any of the companies mentioned in this article.

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