Bryan G. Stockton, the chairman and chief executive officer (CEO) of Mattel, Inc. (MAT - Analyst Report), resigned from the company on the same day when the toy maker posted disappointing preliminary fourth quarter 2014 numbers – marking the fifth consecutive quarter of weak results. Effective immediately, Christopher A. Sinclair has been named the chairman and interim chief executive officer of the company.

The resignation of the CEO comes in the wake of continued sluggish results since the past one year. In the preliminary results for the fourth quarter of 2014, earnings of 52 cents per share declined 51% year over year and missed the Zacks Consensus Estimate of 98 cents by 88%.

The significant downside reflects sluggish revenues and lower gross margins. Revenues declined 6% year over year to $1.99 billion possibly owing to a significant decline in sales of Barbie and Fisher-Price, its two flagship brands.

In fact, sluggish performance of the Fisher-Price and Barbie Brands has been a matter of concern for Mattel. Both these brands have been posting soft sales since the beginning of 2013. The rate of year-over-year decline has increased every quarter owing to weak demand for traditional toys.

Barbie posted double-digit sales declines for the first three quarters of 2014 and is expected to report another steep drop once Mattel reports its 2014 results. Fisher-Price also performed dismally.

We believe that increasing inclination of kids toward electronically driven devices has lowered the demand for traditional products. Mattel has to battle a broad array of alternative modes of entertainment including video games, MP3 players, tablets, smartphones and other electronic devices.

This toy maker thus faces stiff competition from manufacturers of such products. Besides Mattel, companies like JAKKS Pacific, Inc. (JAKK - Analyst Report) are also bearing the brunt of changing consumer preference to some extent.

Gross margin at MAT declined 410 basis points to 50.4% in the fourth quarter due to higher expenses related to the acquisition of acquisition of MEGA Brands while selling general and administrative expenses increased 390 basis points as a percentage of sales. Owing to higher expenses, operating income was only $237.0 million, down 51% year over year.

The company is also losing market share to mass merchants. Currently, Mattel holds the profitable rights to develop dolls based on The Walt Disney Company (DIS - Analyst Report) characters from the animated movie Frozen and Disney Princess. However, per a new deal signed in Sep 2014, Hasbro Inc. (HAS - Analyst Report) has been given the rights to manufacture these dolls based on Disney Princess stories and characters, beginning 2016, worldwide, except in Japan.

The loss of rights has compounded the woes for this Zacks Rank #4 (Sell) company. The partnership with Disney had been a savior for Mattel so far. Therefore, the company is likely to lose a substantial chunk of revenues, especially at a time when the toy maker is battling intense competition as a result of increasing popularity of electronic and mobile games.

The company is set to report final fourth quarter and 2014 results on Jan 30, 2015.