Santa had better get to work now in order to get toys under the tree by the holidays.
UBS analysts have raised concerns that supply chain issues, driven by COVID-19, could affected the toy category during the critical holiday season.
“There is now increasing risk supply disruption could put a strain on toy inventory in the months leading up to the holiday season,” analysts led by Arpine Kocharyan wrote.
“Inventory in the channel is relatively clean, driven by overall healthy demand and supply constraints that have worsened.”
Toy demand was elevated during 2020 when parents were looking for ways to entertain homebound children.
Supply chain problems have plagued a variety of consumer categories during COVID-19, with Nike Inc.
experiencing shutdowns recently at manufacturing facilities in Vietnam as the pandemic ripped through towns in the region.
Read: Nike manufacturing in Vietnam grinds to a halt due to COVID-19, creating another supply chain challenge
Add to that, the calendar that usually guides inventory moving into the holiday shopping season has been upended.
“We could start to see ‘supply holes’ as early as Sept/Oct ahead of holiday season,” analysts said. “Toy makers with robust direct import programs with mass merchants such as Walmart, Target and also Amazon, have been relatively better positioned in navigating supply chain disruptions.”
UBS notes that Amazon.com Inc.’s
Prime Day shopping event, which took place last month, was “muted for toy sales.”
Besides the supply chain challenges, UBS highlights other near-term issues like stimulus money, which fueled purchases earlier this year, has largely been spent, and when consumers do spend these days, it’s more likely to be on experiences such as dining out and travel rather than goods.
MKM Partners has also raised concerns about toy supplies going forward.
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“The supply chain is becoming more worrisome due to severe container imbalances and still rising shipping costs,” Eric Handler wrote in a Hasbro Inc.
note earlier this month. He said much the same in a Mattel Inc.
note as well.
Hasbro is scheduled to report second-quarter earnings on July 26, and Mattel is scheduled to release results the following day.
“Press reports have these disruptions continuing into the late-summer, peak demand period, which could cause inventory shortages during the holiday season.”
MKM rates Habro shares buy with a $115 price target. Mattel is rated neutral with a $23 fair value estimate.
Stifel rates Hasbro stock buy with a $114 target price, citing improved performance for eOne and strength in digital gaming.
Stifel rates Mattel hold with a $23 price target.
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“We’re forecasting another solid quarter for the biz, with healthy top- and bottom- line gains, albeit for a seasonally less important period for toys,” the note said.
“With that said, 2H21 comps are tough, suggesting a decelerating growth trajectory, and ongoing supply chain disruptions create headline noise (and potential risk, in our view), which could keep the shares in check.”
Hasbro stock has added 0.5% for the year to date while Mattel has gained 12% for the period.
The S&P 500 index
is up 15.1% for 2021 so far.