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Mattel Sinks as Retailers Cut Barbie Brand Inventories

Mattel Inc. (MAT), the world’s largest toymaker, declined the most in more than a year after Toys “R” Us Inc. and Wal-Mart Stores Inc. (WMT) cut inventories of Barbie dolls, causing first-quarter sales to trail analysts’ estimates.

The shares slid 9.1 percent to $31.01 at the close in New York for the largest decline since July 16, 2010. Mattel has gained 12 percent this year.

Sales in the three months ended March 31 dropped 2.5 percent to $928.4 million, the El Segundo, California-based company said today in a statement. The average of 10 analysts’ estimates compiled by Bloomberg was $984.7 million.

“This was definitely a considerably worse performance than expected at the top line,” Sean McGowan, an analyst for Needham & Co. in New York, said in a telephone interview. Investors shouldn’t be too concerned because the first quarter contributes the least to Mattel’s annual sales, and revenue from “Cars 2” toys fell from last year, when the film was released, said McGowan, who recommends buying Mattel shares.

Mattel’s largest retail partners were cautious on orders and reduced inventories at mid- to high-single-digit percentage rates, Chief Executive Officer Bryan Stockton said today. Those chains include Wal-Mart, Toys “R” Us and Target Corp. (TGT)

Gross sales of Barbie products, which fell 6 percent globally and 9 percent in the U.S. during the quarter, were particularly affected by the retailers’ inventory cuts, Stockton said.

Retailers More Cautious

“Retailer inventory reductions were more drastic than we thought,” Stockton said on a conference call with analysts. Retailers in the U.S. and Europe “have been cautious, and we expect them to remain being cautious.”

The sales decline for Barbie was the brand’s first in 10 quarters, Drew Crum, an analyst for Stifel Nicolaus & Co. in Cleveland, wrote in a note to clients. Crum, who rates Mattel shares hold, had predicted the brand’s sales would increase 1 percent.

U.S. toy sales declined 2 percent to $21.3 billion last year, according to NPD Group. Mattel posted an annual sales gain of 3 percent in the U.S. last year.

“At this point, we don’t see anything from a macro basis that would lead us to believe that there is some secular change in the toy industry,” said Stockton, who replaced Chairman Robert Eckert as CEO on Jan. 1. The U.S. has been growing slower, but we don’t see anything from consumer spending or retail commitments that signals a major change, he said.

Hasbro Inc. (HAS), the world’s second-largest toymaker, is scheduled to report first-quarter results April 23.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net

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