Mattel Inc.’s recall of the Fisher-Price Rock ‘N Play, which has been tied to infant deaths, could cost $40 million to $60 million, according to estimates from UBS analysts.
The Rock ‘N Play was sold for about $40 to $149, and Mattel is offering a cash refund, including sales tax, to customers who have owned the item for six months or less. After that, the refund, which comes in the form of a voucher, is based on how long the consumer has owned the item.
“We estimate full cash refund for six month ownership of ~$18 million to $22 million, assuming 100% redemption rate,” UBS analysts led by Arpine Kocharyan wrote. “We estimate additional $20 million to $40 million of voucher redemption exposure, assuming 50% to 100% redemption rate on a sliding scale.”
UBS rates Mattel shares neutral and trimmed its price target $1, down to $14.
Both Mattel MAT, -3.01% and the Consumer Product Safety Commission (CPSC) have warned consumers that infants can roll over in the item.
”Since the 2009 product introduction, over 30 infant fatalities have occurred in Rock ‘N Play Sleepers, after the infants rolled over while unrestrained, or under other circumstances,” according to the CPSC.
The recall includes about 4.7 million products. Fisher Price says it stands by the safety of its products.
“However, due to reported incidents in which the product was used contrary to the safety warnings and instructions, we have decided to conduct a voluntary recall of the Rock ‘n Play Sleeper in partnership with the Consumer Product Safety Commission,” Chuck Scothon, general manager of Fisher-Price, said in a statement Friday.
Stifel analysts think the recall poses legal and reputation risk to Mattel, could lead to manufacturing and design costs, and could drive up marketing costs.
“Product recalls, while less frequent, are part of the toy business,” Stifel said. “But they pose reputation risk and may undermine licensor, retailer, and consumer confidence in the safety of a product or brand, lead to litigation and increased compliance costs, all of which could have a negative influence on the industry and/or a toy manufacturer’s business.”
Stifel rates Mattel shares hold with a $14 price target.
Mattel is scheduled to report first-quarter earnings on April 25. MKM Partners is “cautious” due to the hurdles the toy company still faces. While the Barbie and Hot Wheels brands are on the path to growth, Fisher Price is among the brands that continue to struggle.
“These lagging segments include Fisher-Price and Thomas (23% of gross revenue), American Girl (6% of gross revenue) and Challenger Categories (30% of gross revenue), which represents action figures, building sets (Mega) and games,” MKM wrote.
“From a revenue standpoint, we look for continued positive trends (low-single-digit growth) from Barbie, Hot Wheels and Jurassic World products. However, these gains should be more than offset by double-digit declines from both Fisher-Price and American Girl,” the note said.
MKM rates Mattel stock neutral with a fair value estimate of $13.
Mattel stock closed Monday down 3%, but has rallied 32% for 2019 so far, outpacing the S&P 500 index SPX, -0.06% which is up nearly 16% for the period.