Mattel sees cautious Christmas after 3Q net rises

AP News
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Posted: Oct 15, 2010 5:33 PM
Mattel sees cautious Christmas after 3Q net rises

Retailers are being cautious on ordering toys ahead of the holidays, Mattel's CEO said Friday, which could make hot toys scarce this year.

"Retailers remain guarded with inventory and several are betting on a late holiday season this year," CEO Bob Eckert said Friday in a call with analysts. "Yes, there will be a Christmas. That said, I suspect it will play out later than we're accustomed to."

Eckert made the comments as Mattel said its third-quarter net income rose 23 percent, helped by strong sales gains for dolls including Barbie and Disney Princesses and a tax benefit.

But its revenue, although it rose 2 percent to $1.83 billion, fell well short of analyst predictions, sunk by weakness in the company's Fisher-Price and Hot Wheels division. The miss sent its shares tumbling 6.5 percent.

Toymakers are gearing up for the holidays, during which they make up to half of their annual sales. Toys fared relatively well during the recession because parents cut back on spending for themselves before their children. Holiday sales are expected to be slightly positive. BMO Capital Markets analyst Gerrick Johnson predicts a 2 percent revenue increase for the full year compared with 2009.

Some retailers have expanded their toy offerings this year: Toys R Us is opening 600 temporary stores during the holidays and Sears is expanding its toy shops within its stores.

But despite the extra selling space, retailers are remaining cautious in ordering, Eckert said, taking a cue from the back-to-school season, when shoppers waited until the last minute to make purchases.

He said that inventory at retail is currently down in the low- to mid-single digits, and excluding new properties such as "Toy Story 3" and World Wrestling Entertainment, inventory at retail is down in the double digits below last year, "and last year was pretty tight." The cautious ordering is widespread, he added.

"We do know that some key retailers are betting on a late Christmas, based in part on their experience during back-to-school," he said.

But he added that a lot of the temporary stores haven't opened yet, shipments to those are just beginning and how the holiday season is going to play out is "still up in the air."

He predicted some toys might be hard to find, however, including $12.99 singing dolls Sing-a-ma-jigs; Monster High, a brand of dolls, clothing and other products featuring characters who are the offspring of famous monsters; and the $69.99 Dance Star Mickey, a dancing and talking Mickey Mouse doll.

"The hot toys are starting to sell so those toys are not going to be around, and they're already starting to disappear," he said.

Mattel Inc., based in El Segundo, California, said Friday that net income rose to $283.3 million, or 77 cents per share. That is a penny above what analysts expected. A tax benefit boosted net income by 5 cents per share. Net income totaled $229.8 million or 63 cents per share last year.

Revenue rose 2 percent to $1.83 billion fell short of the $1.94 billion analysts polled by Thomson Reuters, on average, predicted. Barbie sales continued to be strong, rising 6 percent worldwide. Other doll sales rose 7 percent, driven by Mattel's Disney Princess dolls and its new Monster High dolls.

Mattel's "Toy Story 3" toys and its new licenses Thomas and Friends and World Wrestling Entertainment sold well, but other categories were weaker.

Sales of Hot Wheels and Fisher-Price toys both fell. Sales of the pricey American Girl doll line rose 2 percent.

"While the all-important holiday season is still in front of us, we remain on track to deliver solid revenue and profit growth driven by our portfolio of brands and countries," CEO Robert A. Eckert said.

Shares fell $1.55, or 6.5 percent, to $22.45.