Mattel Profit Disappoints on Weak Sales; Shares Sink

Mattel, posted a fourth-quarter profit far below Wall Street forecasts on Monday, crushed by disappointing holiday sales and a stronger dollar, and its shares dropped 17.5 percent.

Greg Baker / AP

Sales of Mattel's flagship Barbie fell 21 percent, a grim sign for the world's biggest toymaker, which is building a campaign for the doll's 50th anniversary next month.

Mattel fell prey to deep consumer cutbacks in its fourth quarter -- a period including the holiday shopping season that was expected to bring better fortunes for toy sellers than many other companies. But the recession, job losses and a credit crunch led consumers to even pare spending on their children.

"Our business wasn't immune from the deteriorating economic environment of 2008," Mattel Chief Executive Robert Eckert said in a statement. Eckert said Mattel's focus would be on costs and spending cuts in 2009.

Retailer Toys "R" Us, for example, said in January that sales had declined at both its domestic and international businesses in the 2008 holiday season. Mattel rival Hasbro , whose shares fell 8.2 percent on Monday, is due to report results next week.

Mattel said net profit fell to $176.4 million or 49 cents a share, from $328.5 million, or 89 cents a share, a year earlier.

Analysts on average were expecting the company, whose brands also include Hot Wheels, to post a profit of 71 cents a share, according to Reuters Estimates.

Sales fell 11 percent to $1.94 billion as the company's recession-hit consumers bought fewer toys in the weeks leading up to the holiday season. Mattel said its sales suffered a 5-percentage-point setback due to the stronger dollar -- nearly half the percentage value of its sales decline.

While domestic gross sales fell 6 percent, international sales, which account for a significant portion of revenue, were down 20 percent, Mattel said.

Inventory Planning

The "really shocking" aspect of Mattel's results was the company's inventory level, up 13.3 percent from a year ago to $485.9 million, said BMO Capital Markets analyst Gerrick Johnson.

"That means things deteriorated much more quickly than they had planned," Johnson said.

"There is no reason for them to have extra inventory for the first quarter, because they have no entertainment properties this year," he said. "It also might mean the first quarter's going to be a lot weaker than we thought because it means they probably brought inventory into the country to distribute for spring, but retailers were like 'Ah no thanks, keep it."'

Mattel announced in November that it would shed about 1,000 jobs, saying at that time that it was facing one of the most challenging periods in the past century.

Mattel's shares were down to $11.70 in premarket trade from Friday's close of $14.19

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