Photographer: Daniel Acker/Bloomberg

Mattel Crashes as Holiday Stumble Raises Turnaround Doubts

  • Deep discounting hurt margins during the period, CEO says
  • Fourth-quarter profit fell below lowest Wall Street estimate

Mattel Inc. fell the most in almost eight years after posting weak holiday results, casting doubt on its turnaround just two weeks before a new chief executive officer takes over.

The company posted profit in the fourth quarter of 52 cents a share, excluding some items. That was well below the 71-cent average analyst estimate and even missed the lowest Wall Street projection of 61 cents. Sales also came in below predictions during the period, a critical stretch for toymakers.

The results deal a blow to a company that had been turning around its operations. Mattel had reported positive quarters in the past year as Barbie, its largest brand, regained some of its prior popularity. But Barbie’s star power faded during the holidays: Its sales fell 2 percent in the past three months -- the first decline in three quarters. Total revenue sank 8.3 percent to $1.83 billion, missing the $1.96 billion estimate.

“The turnaround is going to occur in fits and starts, it won’t be a smooth process,” said Jaime Katz, an analyst at Morningstar Inc. “The numbers don’t look terrible. It seems to be more about the willingness of consumers to spend in the period rather than the product.”

Margin Woes

The holiday slump also forced toy sellers to rely more on discounts, squeezing profitability CEO Chris Sinclair said in a statement. Mattel’s gross margin narrowed by 3.2 percentage points.

The shares declined as much as 14 percent to $27 on Thursday, the biggest intraday drop since February 2009. That erased the stock’s gain so far this year. Mattel’s woes hammered toymaker Hasbro Inc.’s stock too, as it fell as much as 7.5 percent to $80.22

Last quarter’s performance leaves plenty of work for incoming CEO Margo Georgiadis. The former Google executive will take over on Feb. 8, Mattel announced last week. Sinclair, a longtime board member who stepped in to replace ousted CEO Bryan Stockton, will stay on as executive chairman.

Mattel’s prospects looked much brighter last year. After years of declining sales, Barbie’s sales grew 23 percent in the second quarter and 16 percent in the third. Chief Operating Officer Richard Dickson, a brand development guru, appeared to have made Barbie relevant again with savvy marketing and offering the doll in more body types.

The company is still headed in the right direction, Katz said. Many of the brands had momentum entering the holidays and revenue from Mattel’s car brands like Hot Wheels rose 13 percent, she said.

Toys “R” Us Inc. cast doubt on the holiday toy-selling season last week when its sales came in lower than expected. The retailer said same-store sales for the nine-week holiday period in the U.S. declined 2.5 percent. Research firm NPD backed up the notion of a slowdown as well, saying this week that purchases “took a downward turn” in the first weeks of December. Still, overall toy sales rose 5 percent last year to $20.4 billion, NPD said.

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