Toymaker Mattel, executives named in shareholder class action suit

 

A shareholder class action suit has been filed against Mattel and a handful of its executives in a case alleging high levels of unsold toy products, increased risk, and materially false or misleading information about these issues.  To learn more about this case, visit Battea’s Mattel case summary.

Specifically, the suit alleges that before and during the class period, Mattel had given its retail customers large amounts of inventory that remained unsold, increasing the company’s risk of having to issue sales adjustments and discounts to take that inventory back. Consequently, the risk factors and disclosures in the company’s financial filings related to the third quarter of 2016 were allegedly false and misleading, and statements the company and executives made about its current and future business lacked a reasonable basis.

In addition to naming the company itself, the securities class action lawsuit also names as defendants Executive Chairman of the Board Christopher Sinclair, President and Chief Operating Officer Richard Dickson, Chief Financial Officer Kevin Farr and Senior Vice president and Corporate Controller Joseph Johnson. The suit was filed in the U.S. District Court for the Central District of California, and has a class period from Oct. 20, 2016, to April 20, 2017.

The toy manufacturer Mattel faces a class action suit.The toy manufacturer Mattel faces a class action suit.

Digging into the details
The class period began the day after Mattel issued its third-quarter 2016 results, with worldwide net sales coming in flat overall, but an increased operating income on an annual basis. Sinclair noted that the company was happy with its momentum as the holiday shopping season arrived.

However, despite that positive outlook, the company reported problematic fourth-quarter and full-year financial results a few months later, with worldwide net sales down 4 percent, as well as a huge decline in operating income over the previous year. At that time, Sinclair attributed these issues to an industry-wide slowdown and expressed continued optimism for future improvement.

Then in April, at the close of the class period, Mattel revealed that it had suffered even more sharp declines in net sales. It was in these disclosures that the company revealed its “retail inventory overhang coming out of the holiday period” as a major source of its issues.

“While we have a lot of work to do to successfully position Mattel for the future, we see a clear runway to improving growth and profitability over time,” Sinclair said.

How the stock moved
At the start of the class period, stock in Mattel was trading at $32.46 per share, but quickly began to slide. Just before the company revealed its full-year financial reporting, it began to tick upward again, but plummeted more than $5.50 in a single day when the negative results were revealed, falling to $25.99.

Afterward, the stock continued its downward trajectory, albeit more slowly, hitting $25.21 by the close of the class period. It fell further, reaching $21.60 just two days later. Today, stock in Mattel trades for just $20.99 per share.

For more information on this case or other class action litigations, please contact Sam Wankel, Senior Vice President, Research, Battea Global Litigation Research, Inc., at 203-987-4949 or info@battea.com.