Mattel Posts Profit Drop Despite Sales Gain

The world's biggest toy maker said Thursday that third-quarter profit fell 3.8%, as cautious retailers, uncertain how much parents and their kids would spend during the upcoming holiday season, kept their orders lean.

The results prompted concern among some in the industry, who said tough competition and rocky starts for key new toys could make the fourth quarter less than fun-filled for the El Segundo company. Still, analysts were pleasantly surprised by Mattel's modest gain in sales during the quarter.

"Since the beginning of this year, we have consistently said we expect 2003 to be challenging," Chief Executive Robert Eckert told investors in a conference call before the stock market opened. "And that has certainly been the case thus far."

Mattel said net income for the period ended Sept. 30 was $270 million, or 61 cents a share, down from $280.6 million, or 63 cents, a year earlier.

Excluding income related to an accounting change and one-time charges, the company earned $265.2 million, or 60 cents a share, up from $256.7 million, or 58 cents, a year earlier. Based on those results, the company met expectations of analysts surveyed by Thomson First Call.

Total sales rose 2.1% to $1.7 billion. As has been the case for most of the year, Mattel's strongest performance was outside the United States. Domestic sales fell 4% in the quarter, but international sales rose 16%, marking the company's 12th consecutive quarter of sales gains abroad.

Throughout the year, Mattel and other manufacturers of consumer goods have blamed less-than-stellar results on the weak economy and retailers' reluctance to relive last year's post-holiday glut of unsold products.

But Mattel, which is releasing a flood of new products in time for the holiday season and embarking on its largest-ever advertising campaign, acknowledged that some early reviews haven't been encouraging.

One of the company's biggest new products already has suffered a setback. Flavas, a line of hip-hop-themed dolls, had a prominent display this fall on the aisle ends at Target Corp.'s stores. After a few weeks, Target, a leading toy seller, took down its special display of the dolls, which were set to compete with the popular Bratz dolls made by North Hills-based MGA Entertainment Inc.

"The end-aisle display did not perform up to Target's expectations," Eckert told analysts Thursday. "It's too early to see how it will play out, but [Flavas] hasn't set the world on fire."