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Mattel to Cut 3,000 Jobs, Close Plants, Invest in Internet

April 16, 1999|GREG JOHNSON | TIMES STAFF WRITER

Scrambling to regain momentum in the rapidly changing toy industry, Mattel Inc. on Thursday said it will cut costs by eliminating 3,000 jobs and closing some plants. Mattel also said it will pump $50 million into a new e-commerce Internet venture.

Mattel also reported a $17.9-million loss the first quarter, its first loss since 1997 and further evidence of how the company is being rocked by competitive pressures.

The flurry of activity marks the latest chapter in Mattel Chairman and Chief Executive Jill E. Bara's high-profile campaign to stabilize the world's largest toy manufacturer. Mattel recently saw its No. 2 executive resign, suffered an unprecedented sales slowdown in its $2-billion Barbie doll business last year, and has been rocked by fundamental changes in how toys are sold.

Mattel could get hit with still more bad news later this year when newly revived arch-rival Hasbro Inc. launches a much-anticipated toy line tied to "The Phantom Menace" George Lucas' upcoming "Star Wars" film.

Mattel's restructuring, which will affect 10% of its total work force, is designed to put the company's costs in line with stalled revenue growth.

Cost-cutting will be felt across the company's far-flung operations, but Barad said that while there will be some consolidation at the [El Segundo] headquarters, "most of [the cuts] will occur elsewhere."

Mattel has 29,000 employees worldwide, including 2,000 in El Segundo.

Wall Street responded favorably to Barad's battle plan, with investors pushing Mattel's shares up $2.31 to $28.25 in New York Stock Exchange trading.

Mattel's first-quarter loss of 7 cents a share, generated in large part by its recent, $3.8-billion acquisition of the Learning Co., was in line with analysts' expectations.

"Wall Street was very pleased with what it heard today," said David Leibowitz, managing director of New York-based Burnham Securities. "The easiest way to describe it is a two-thumbs-up performance."

Mattel reported strong first-quarter performances by its core Barbie doll, Hot Wheels car and Fisher-Price toy units. Mattel said first-quarter sales in Europe, a key ingredient in the company's growth plan, were solid.

Barad said the Barbie line, which stumbled badly in 1998, is back on its pace: "Barbie is alive and well at 40, and we remain confident that she can grow at a 7% to 10% rate this year."

Mattel said it will take a charge in its second quarter of up to $185 million related to the restructuring. It said the austerity moves should generate $400 million in savings over the next three years.

Analysts say Mattel's painful restructuring is driven by cost-conscious retailers such as Toys R Us, which are reducing inventories and pushing costs back to manufacturers. Earlier this year, for example, Bilund, Denmark-based toy giant Lego said it would try to boost profitability by cutting 1,000 employees.

"Given last year's bad performance at the retail level, all companies have been forced into a position of cutting costs and refocusing," said Eric Johnson, a business professor at Vanderbilt University who studies the toy industry. "What Mattel is doing is in keeping with the general perception of life in toyland."

As they cope with changing demands from retailers, toy makers also are erecting online infrastructures needed to combat such upstarts as Etoy, the Santa Monica-based company that hopes to do for the toy industry what Amazon.com has accomplished in the bookselling world.

"The Internet is a magic word right now, and Mattel.com has captured the fancy of those who read Mattel's news earlier today," Leibowitz said.

Barad maintains that Mattel is well on the way toward building a $1-billion online presence, both through internally developed products and such acquisitions as the Learning Co., the nation's second-largest software company and owner of such popular titles as "Carmen San Diego" and "Myst."

Mattel hinted that it will try to capitalize on the Internet stock frenzy by spinning off part of Mattel.com to the public. Barad said a spinoff of the online business could come as soon as September or October.

Barad also maintained that Mattel will not be hindered by the unexpected departure in March of President and Chief Operating Officer Bruce Stein.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Trouble in Toyland

Beset by slowing sales and writeoffs for merger deals and product recalls, Mattel's profits have slumped over the last year. Quarterly net income per share:

First quarter 1999: -$0.07

Source: Mattel Inc.

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EMBATTLED LEADER

Mattel,s problems are a key test for Chief Executive Jill Barad. C2

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