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Barbie, Hot Wheels sales tumble, taking Mattel shares with them

Mattel shares drop to 49 cents a share from 89 cents a year ago on news that sales of Mattel's iconic toys were down 20%.

February 03, 2009|Martin Zimmerman

Mattel Inc. stockholders got a late Christmas delivery Monday: a lump of coal.

Shares of the El Segundo toy maker plunged more than 16% after the company reported fourth-quarter earnings that fell far short of Wall Street forecasts.

Sales of the company's signature Barbie dolls and Hot Wheels toys fell more than 20% compared with the fourth quarter of 2007 as the worst holiday shopping season in 40 years brought out the Grinch in parents.

"Toys have always been one of the most recession-resistant industries out there," said Chris White, an analyst with Wedbush Morgan Securities in Los Angeles. "The thinking is that adults . . . are going to buy toys for their kids no matter what.

"But what we're seeing in the current economic downturn is clearly without precedent in recent memory."

Mattel reported net income of $176.4 million, or 49 cents a share, for the three months ended Dec. 31, down 46% from $328.5 million, or 89 cents, in the same period a year earlier.

Worldwide sales in the quarter were $1.94 billion, down 11% compared with a year earlier. Changes in currency exchange rates accounted for about 5 percentage points of that decline, the company said.

Analysts polled by Thomson Reuters, on average, were expecting Mattel to earn 72 cents on revenue of $2.2 billion.

The shortfall sparked a sell-off of the company's stock, which slid $2.29, or 16.1%, to $11.90. The selling spread to Mattel's chief competitor, Hasbro Inc., which is due to release fourth-quarter results Monday. Hasbro's stock dropped 9.1%, falling $2.20 to a 52-week closing low of $21.93.

Overall, retail sales in the U.S. were down 2.2% during the two-month holiday period compared with a year earlier, according to the International Council of Shopping Centers. That made it the weakest holiday season in four decades, despite some of the most aggressive markdowns ever on merchandise including electronics, apparel and luxury items.

"Our business wasn't immune from the deteriorating economic environment of 2008," Mattel Chief Executive Robert A. Eckert said in a statement. "In response, our focus for 2009 is on cost and spending reductions, and maintaining a strong balance sheet." In November, Mattel said it would cut about 1,000 jobs -- 3% of its global workforce -- to cut costs.

In the fourth quarter, sales of Barbie dolls fell 21% and Hot Wheels sales were down 22%. On a brighter note, sales of Mattel's American Girl doll line rose 5% as the line benefited from store openings and a product tied to the Kitt Kittredge movie.

Sales were down 6% in the United States and 20% in international markets.

For the full year, Mattel reported net income of $379.6 million, or $1.05 a share, compared with net income of $600 million, or $1.54, in 2007. Full-year sales fell 1% to $5.92 billion.

Mattel, as is its custom, didn't provide revenue or profit guidance for 2009. However, White said he lowered his revenue estimates for 2009 and 2010 to $5.60 billion and $5.87 billion, respectively, from $6.19 billion and $6.45 billion.

White cut his '09 and '10 per-share profit estimates to $1.10 and $1.36 from $1.45 and $1.75.

"If sales fell so dramatically in the fourth quarter, there's every reason to believe that trend will continue in the first quarter," he said.

White noted that Mattel should benefit from falling commodity costs this year -- it's a major user of plastic, which is made from oil. It also may see legal costs from its lengthy litigation with MGA Entertainment Inc. over the Bratz doll line begin to taper off as that case nears resolution.

A jury found last year that the dolls infringed Mattel's copyrights, but a judge later ruled that the dolls could continue to be sold through 2009.


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