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The toy industry is not performing well during 1994, as more retailers are consolidating and toy manufacturers are cutting costs to survive. The industry is mixed as far as firms' outlooks go, with those firms that are branching out internationally looking brighter. Mattel Inc should do well for this reason. In addition, toy licensing is one of the main growth areas in the toy industry, and Mattel has contracted with Disney to make toys for all of its 1994 and 1995 films.

Toys stocks are a relatively risky investment, with short-lived products, intense competition, and no dividends available at some companies, such as Tyco and SLM International. Mattel is the only toy company of those tracked that is forecast to show above-average performance during 1995. The market for toys is expected to improve in the second half of 1994 after a poor performance during the first half.

The toy industry should experience strong growth in 1994 and 1995. Mattel, Hasbro, SLM International are expected to grow partly by acquiring smaller companies and partly through increased revenues generated in international markets. In addition to Tyco, the companies are expected to benefit from popular licenses. Investments in this group are mixed, with Mattel's stock rated as the most timely and SLM's stock having good prospects through the 1997-1999 period.

The toy industry will improve during 1994 as the economy improves, but industry firms' outlook will vary greatly in terms of performance. Popular toys in 1994 are ones with a connection with either a television show or a movie, and the bigger the movie or television show, the more the product sells. Industry analysts are forecasting strong long-term growth for industry firms, and SLM International offers above average growth opportunities.

Profits for the toy manufacturing industry should increase over the next 3 to 5 years, as toy manufacturers acquire new holdings and move into overseas markets. Responsibility for inventory has shifted from retailers to manufacturers, causing to toy companies to refine their operations. Savings from improved manufacturing are not improving profits, but they do prevent passing rising costs on to the consumer. Both retailers and manufacturers have responded to dismal consumer spending by offering various promotions.

The toy and school supplies industry stocks are ranked low in timeliness as securities to buy, except for companies such as Mattel and Hasbro, which are expected to do well during 1994. The industry has been plagued with problems, such as too much competition and retailers who purchase only what is selling the most. In addition, toy discounters are offering consumers coupons and discounts to attract buyers, and companies such as Toys 'R' Us is leading the way by mailing coupon catalogues to 52 million households.

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