Mattel: Better Times in Toyland

The company posted a quarterly profit rise amid efforts to boost its Barbie brand

Barbie has been up against tough competition recently, like interactive video games and her glitzier rivals from MGA Entertainment, the Bratz dolls. But her maker, Mattel (MAT), said on Jan. 29 that it's been keeping sales up nonetheless and managing to improve profits. The El Segundo (Calif.) company's fourth quarter results got a lift from things like its acquisition of the electronic entertainment toys maker Radica Games completed on Oct. 3.

Mattel posted net income of $286.4 million during the three months ended Dec. 31, up 2.6% compared to the same period of 2005. "I am pleased with our 2006 results as we made good progress in addressing the two key challenges facing the company: U.S. sales declines in the Barbie brand and pressure on our gross margins," said Mattel CEO Robert A. Eckert in a press release.

Mattel's net sales during the fourth quarter were $2.11 billion, up 14% compared to the same period last year, including the favorable impact of foreign currency exchange rates.

CEO Eckert has broadened his product line of toys in recent years (see, 12/13/02, "Barbie vs. the Bratz"). For example, Mattel sells dolls based on Dora the Explorer, from the TV show on Nick Jr.; she takes on dangerous adventures, solves challenging quests, and can speak more than one language. In another effort to turn the company around, Mattel in Oct. 2005 said it consolidated its Mattel Brands and Fisher-Price Brands divisions, lumping Barbie, Hot Wheels and Fisher-Price in with licensed entertainment properties like Dora, Batman, and Sesame Street.

Fisher-Price sales gained 16% worldwide during the fourth quarter. Not that Mattel is ignoring Barbie. The company has been trying to help her popularity with experiments like a Barbie video game and also a Web site, which attracts millions of viewers (see, 7/18/06, "Mattel's Barbie Trouble"). Barbie's worldwide sales were up 3% during the fourth quarter, compared to 1% during the third. Before that, Barbie's sales had fallen for 11 consecutive quarters.

Mattel is also trying to improve the amount that it profits on each sale, taking steps like raising its prices and saving money on its business process. During the recent quarter, the company's gross margin increased by .20% of net sales.

"Barbie's domestic gross sales grew for the year with four consecutive quarters of U.S. growth and our gross margins also grew in 2006, the first increase since 2003. Although positive trends, we have more to achieve on both fronts," CEO Eckert said in the press release.

Standard & Poor's Equity Research now expects Mattel's revenue to grow by 4% in 2007. Analyst Erik Kolb upgraded his rating on the stock to hold from sell on Jan. 29. (S&P, like, is owned by The McGraw-Hill Companies.)

But investors sold the stock 1.4% to $23.62 in early afternoon trading on the New York Stock Exchange Jan. 29. Mattel had hit its high of the year earlier Jan. 29 at $24.78 per share, after trading as low as $15.50 in Jan. 2006.

Pallavi Gogoi in New York and Christopher Palmeri in Los Angeles contributed to this report

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