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Mattel Earnings Surge 35% in Holiday Quarter

Sales of Barbie and Elmo and tight cost controls help the firm gain during a tough season for retailers.

February 04, 2003|Abigail Goldman | Times Staff Writer

Top toy maker Mattel Inc. on Monday reported a 35% gain in fourth-quarter profit as parents snapped up Rapunzel Barbie dolls and Chicken Dance Elmo toys despite a largely disappointing holiday selling season for many companies.

The El Segundo-based company said it earned $186.1 million, or 42 cents a share, for the three months ended Dec. 31, up from $138 million, or 31 cents, a year earlier.

The results included a $7.2-million pretax charge as part of the company's financial realignment plan, which included costs related to shutting domestic factories in favor of cheaper operations outside of North America. The company also recorded a $25.4-million pretax charge in the quarter related to settling shareholder lawsuits over the company's 1999 acquisition of Learning Co.

Sales grew 7% to $1.67 billion for the crucial holiday quarter, up from $1.56 billion a year ago. In the United States, sales were up 6%. International sales rose 11%, the company's 10th straight quarter of sales gains abroad.

Looking ahead, Mattel Chief Executive Robert Eckert reiterated the company's long-standing goals of increasing revenue and earnings growth. But he added that the company would not offer earnings guidance in the future, except to update initiatives and offer insight into important trends that may affect performance.

During the next several years, Mattel said, the company plans to use its significant free cash flow for a variety of investment opportunities, including acquisitions, increased dividends and share repurchases. Mattel ended the year with $1.27 billion in cash, an increase of $650 million from a year earlier, mostly as a result of income gains in continuing operations and improved cash collections.

"Sales were up more than I thought, and earnings were higher; it's hard to find anything wrong with that," said Sean McGowan, a toy industry analyst with Gerard Klauer Mattison in New York. "The environment they're in will be more challenging in 2003, but with their gross margin improvements and cash position improvements, they should be in solid shape."

Mattel stock rose every year from 1988 to 1997, then plunged in 1998 and 1999 after the company paid $3.5 billion for software maker Learning Co. under then-CEO Jill Barad.

Since the collapse, however, the stock has been climbing steadily even through Wall Street's bear market of the last three years. The shares, which jumped $1.03 to $21.03 on the New York Stock Exchange on Monday, are up 9.8% this year after rising 11.3% in 2002, 19% in 2001 and 10% in 2000.

Although the weak economy and the labor lockout at West Coast ports last fall stung retailers during the holidays, Mattel benefited from a strong product lineup and tight cost controls.

Sales of Barbie, the company's biggest brand, were up 17% during the fourth quarter. Domestic sales rose 9%.

For the full year, however, Barbie sales suffered slightly at home, falling 2% domestically, mostly as a result of the company's paring back doll offerings for adult collectors. Worldwide Barbie sales helped offset those losses, gaining 6% for the full year alongside strong sales of mini-doll Polly Pocket and history-themed American Girl dolls. The girls division gained 6% for the full year.

For the year, Mattel's net income fell 23% to $230 million, or 52 cents a share, compared with $299 million, or 68 cents, in 2001 because of a $252-million after-tax charge.

Revenue for the year increased 4% to $4.89 billion.

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