The outlook for (( Mattel's NASDAQ:MAT) third-quarter earnings soured after rival Hasbro NASDAQ:HAS) said the trade war with China caused it to miss sales and profits forecasts. Although Mattel has substantially improved its business by exceeding the total cost savings of its turnaround plan early, it too will likely be buffeted by harsh trade winds.

Like its rival, Mattel showed it still had game last quarter, despite the continued decline in once-powerful brands like American Girl and Fisher-Price. But Barbie flexed her muscles in the second quarter, Hot Wheels jump-started sales growth, and Disney merchandise related to the debut of Toy Story 4 helped sales of the toy maker's action figures, building sets, and games surge 23% higher.

But as it prepares to release third-quarter results on Tuesday, Oct. 29, Mattel investors might be worrying that the toy maker's fate will be similar to Hasbro's. Let's see what they might expect.

The good news

Mattel has the benefit of going up against some weak comparables from last year's third-quarter report. Currency-adjusted net sales were down 6% a year ago because of equal parts Toys R Us bankruptcy and liquidation and a slowdown in Mattel's China business. It did see strong operating profits last year as its turnaround plan gained traction, though it suffered all the same impacts from declining franchise brand sales.

That could mean Mattel's current third quarter won't appear quite so bad as it otherwise would, though North American sales did rise in the year-ago period. Barbie, however, has been a source of strength for some time now since the toy maker reimagined her to be more representative of the children who are playing with her, so she may be able to mute some of the worst effects of any slowdown.

What to worry about

Hasbro also went up against comparatively weaker results for many of the same reasons, and its results still got hammered. Because of how the threat of tariff hikes played out across the quarter, it created havoc for retailers who tried to get ahead of the higher costs, which caused difficulty for the toy maker in meeting the demand. It also elevated the costs Hasbro incurred for shipping and warehousing.

Mattel is likely to have confronted many of the same issues, so although it felt confident last quarter in its ability to build on the $650 million in cost savings it achieved early, looking forward to saving another $100 million over the third and fourth quarters, those savings may have been offset by rising expenses elsewhere.

More clouds on the horizon

And looking forward to the fourth quarter, Mattel, Hasbro, and in fact all retailers are faced with a shortened holiday sales period. Due to a quirk in the calendar, there are six fewer shopping days between the traditional Black Friday start to the Christmas shopping season and Christmas Day.

It's a recurring situation that was last seen in 2013 and caused near panic on the part of retailers. Prices were drastically cut to draw in customers, and retailers opened their doors en masse on Thanksgiving Day. Some retailers refused to close their doors and stayed open for days on end to wring every last dollar from customer's pockets.

It could also mean online retailers will play an even larger role in sales this year, and Amazon.com's could become even more pronounced, perhaps offsetting some of the pain investors felt after its earnings miss.

What's it worth to investors?

Since Hasbro reported earnings, Mattel's stock has been dragged lower, falling almost 10% on the expectation that its results will be affected similarly. At $10 per share it does look cheap, but its enterprise value still trades at an exorbitant 50 times the free cash flow it produces.

Yet as its investments in cost savings benefit the toy maker, that could make the valuation more reasonable. Analysts do expect it to grow earnings at a 10% compounded annual rate for the next five years, and since it trades at a fraction of its sales, even meeting Wall Street's expectations could be considered a positive surprise.

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