Mattel Loss Just Misses View; More Sales Pain Seen

Mattel, the world's biggest toy company, posted a slightly wider-than-expected quarterly loss on Friday, hurt by the effect of a stronger dollar and inventory cuts at retailers.

Chief Executive Robert Eckert said Mattel would keep controlling costs as tough market conditions test the resilience of toy companies, which bank on indulgent parents to boost sales.

Nick Ut / AP

The company has already cut about 1,000 jobs and raised prices on its spring toys in the mid-single-digit percentage range as it works to boost its results in 2010.

Mattel's first-quarter net loss widened to $51 million, or 14 cents per share, from $46.6 million, or 13 cents per share, a year earlier.

Analysts on average expected a loss of 13 cents a share, according to Reuters Estimates.

Quarterly sales fell 15 percent to $785.6 million. That includes a 7 percentage-point impact from the stronger dollar, which reduces the value of overseas sales, Mattel said.

Its gross margin rose 80 basis points after a 200 basis point drop in the earlier quarter, which one analyst flagged as potential good news.

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"I don't think people were expecting that swing," said Wedbush Morgan Securities analyst Chris White. "So that begs the question—have they turned the corner on margin contraction that was largely due to rising commodity prices, which are now on their way down?"

Prices for commodities such as oil have eased through the past year, taking some pressure off toy makers.

Barbie Campaign Pays Off?

The holiday sales period in 2008 capped a rough year for toy companies.

U.S. toy retail sales fell 3 percent to $21.64 billion in 2008, according to market research firm NPD Group.

As parents cut back on toys, just as they shy away from spending money on any other unnecessary items in the recession, retailers have been reducing inventories to avoid selling products at deep discounts and to keep from ending up with excess merchandise.

Even as Mattel focuses on costs, it has also built a worldwide campaign this year to turn the spotlight on Barbie, its 50-year-old flagship doll, which has suffered months of weak sales as children's taste in toys change.

Those steps included a fashion show in New York, unveiling a six-story flagship store in Shanghai, a party in Malibu, California, and selling special designs of Barbie dolls.

Its efforts seem to be reaping some early benefits.

Worldwide Barbie sales fell 5 percent in the first quarter, less than its overall sales decline, while sales increased in the double digit range in the domestic market.

"Clearly, retailers have made room for Barbie in an otherwise difficult environment," Wedbush Morgan's White said. "Retailers have been persuaded that Barbie looks good enough to take a chance on."

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