Yahoo Finance Live’s Brian Sozzi provides his take on Mattel and Hasbro amid uncertainty across the toy industry.

Video Transcript

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JULIE HYMAN: Mattell shares are getting rocked, down by almost 11% after a disappointing quarter and outlook. And that comes hot on the heels of major layoff news at Hasbro. Soz has toys on his brain today for his take.

BRIAN SOZZI: Yeah, definitely I do. And I think if you want to tie up what we're hearing from the toy industry, it is essentially this, economy slowing. A lot of these companies have pushed through higher prices. Consumers saying, well, we just don't-- not going to buy these toys. We're going to wait till they're about 70% off.

But let's see the high-level news here. Mattel earnings last night, stock under pressure, as Julie just mentioned. Sales down 22%, that is not the normal rates of growth we've been seeing from Mattel over the past two years. So I think that has a lot of investors spooked a little bit and has surprised them. Inventories up 15%, in large part because those sales really fell off the map. Gross profit margins down 620 basis points year over year.

Interesting to hear on the earnings call last night really two things from Mattel CEO Ynon Kreiz, frequent guest on our program. Says, our fourth quarter results were below expectations as the macroeconomic environment was more challenging than anticipated. And to that end, I think taking a more sober tone on the outlook for the toy industry this year.

Ynon noting that the-- he sees the toy industry flat to slightly up this year in terms of sales, which is-- would mark a deceleration from recent growth rates.

But it's not just Mattel. A couple of weeks ago, Hasbro just came out with just another stinker of a pre-earnings announcement, said they are canning 15% of their workforce. Fourth quarter sales crashed 17% there for Hasbro. They will report their earnings on February 17. I can't imagine they will have anything good to say, given the pre-announcement like this.

I also caught up too with another friend of our show, the-- James Zahn, the editor in chief over at "Toy Book" who is just probably one of the most interesting-- or probably the best person to reach out to in all things toys. He told me a couple problems for Hasbro outside of its just debacle of Wizards of the Coast and their various gaming efforts.

One, they recently moved to no plastic packaging for certain toys. And what that is-- do-- you have the differences right here. On the right, you see old school Hasbro packaging. People like to see their toys, what they look like when they're in the stores.

On the left, you're now seeing the new packaging. Yes, you have the toy on the outside of the box. But you can't actually see the workings, the mechanisms of the toys. And James is telling me that is leading to sales pressure for some of Hasbro's products. Also telling me that the Hasbro base price on the 6-inch action figure jumped from $19.99 to $22 then $24 and then, in some cases, $30.

That is a large-- that is some serious inflation on price-sensitive toys here. And parents are just not going to buy these things. And that's why you see inventory in the channel starting to really back up.

My take is this-- and maybe not a shocker, just given my really negative commentary here. There's no reason to go near these stocks. Yeah, that's not a buy or sell decision. That's just basic-level analysis. You have sales falling off a cliff for toys. You have high inventory levels. You have retailers like Walmart and Target not placing a lot of replenishment orders right now.

And it is unlikely that the toy industry really gets back to growth maybe until the holiday season of this year.

JULIE HYMAN: I didn't recognize some of those toys. Did you recognize the guys that look kind of like He-Man? But I don't know. Maybe that was He-Man.

BRAD SMITH: The early ones? No, I didn't I didn't recognize too many of them. I recognized the ones towards the end, but that was it. And the toys are noticeably smaller too, even on screen.

JULIE HYMAN: Yeah, do you know this series?

BRIAN SOZZI: They--

JULIE HYMAN: I'm not familiar.

BRIAN SOZZI: They don't make toys, I would argue, like they used to. I personally think the quality has gone down. I used to be a little bit of a toy geek.

JULIE HYMAN: Well, forget about the quality. I don't-- maybe this is series the kids are watching.

BRAD SMITH: That's from "Jurassic Park."

JULIE HYMAN: That I recognize. That's a dinosaur.

BRAD SMITH: Who was that dude before? I don't know who he is.

BRIAN SOZZI: I've got a good example for you, real quick. So I bought my nephew a new-- for Christmas, a Pound Puppy, Pound Puppies, stuffed animal. I remember having them when I was a kid. I had four of them. I bought him two.

And you could tell, like the eyes on the Pound Puppy, they didn't look right. They were cheaper quality. The stuffing felt a little different. It's just not the toy I remember from the '80s. And it was disappointing. And I don't know if he still has it. They like playing with the boxes at that age. But still, I was disappointed. I wanted more from the Pound Puppy.

JULIE HYMAN: I'm very sorry.

BRIAN SOZZI: Yeah, I was disappointed actually.

JULIE HYMAN: I'm sorry. I feel like--

BRIAN SOZZI: I'm getting sad now, actually.

JULIE HYMAN: I feel like we've got a puppy eyes situation coming on.