Feb 2 (Reuters) - Mattel Inc shares reversed course to rise as much as 10 percent on Friday, as investors looked past the toymaker's "ugly quarter" in the all-important holiday period to the management's confident tone on the turnaround efforts.
The company's shares dropped 7 percent premarket, after dipping as much 11 percent in extended trading on Thursday following the company's surprise quarterly loss.
"An ugly quarter, as expected," D.A.Davidson analyst Linda Weiser said in a note, but added that she did not expect 40 percent of the decline in gross margin to recur in 2018.
Faced with weak demand for its brands such as Hot Wheels and Barbie due to a shift among children toward videogames and electronic toys, the company had stepped up efforts to cut costs, streamline its portfolio and pull back inventory from retailers.
But the bankruptcy of major customer Toy 'R' Us in September threw a spanner in Mattel's works.
Mattel warned in October that the bankruptcy would cause it to miss its full-year revenue forecast and forced it to suspend its dividend to free up cash.
"We've taken the opportunity to make the tough decisions in 2017 to set the foundation for continued progress on our transformation in 2018," Mattel CFO Joseph Euteneuer said on a call with analysts on Thursday.
The efforts seem to be paying off.
Mattel said it ended 2017 with retail inventory for key brands down over 20 percent and expected sales growth to more resemble point-of-sale growth going forward.
"We believe MAT took the necessary steps in 4Q to clean up inventory and enter 2018 in a better position, and believe they will likely now turn a corner on performance," B. Riley analyst Susan Anderson wrote in a note.
Analysts also highlighted management's expectation to achieve 40 percent of the $650 million of cost savings planned over two years, up from one-third previously.
Investors also cheered Barbie's first sales rise in five quarters, with the iconic brand up 9 percent during the holiday sales quarter.
"Barbie, Hot Wheels and Thomas & Friends growth is expected, but leaves over 70 percent of the business still struggling," wrote Jefferies analysts, who cut their price target to $12.50 from $14.00.
The results come at a time when Mattel's shares have been buoyed by chatter of a takeover by Hasbro Inc. However, Mattel has snubbed the previous offers.
Mattel is expected to provide more details at its analyst meeting on Feb. 16. (Reporting by Uday Sampath and Vibhuti Sharma in Bengaluru; Editing by Sriraj Kalluvila)