Toy maker Mattel Inc. said Friday that strong sales worldwide of its iconic Barbie dolls and "Cars 2" toys helped third-quarter net income rise nearly 6 percent.
Net income results matched Wall Street estimates but the company's gross margin _ the amount of each dollar of revenue that a company actually keeps _ was pressured by higher costs and the strengthening U.S. dollar. On the news, shares slipped 27 cents to close at $27.51 Friday.
Results for Mattel, the largest U.S. toy company, offer a peek at what toy sales may be like during the crucial holiday shopping season from November through December. Its biggest competitor, Hasbro Inc. will report financial results for the third quarter on Monday. Overall, U.S. toy sales are expected to be flat or up slightly this year as parents remain cautious about their spending in the nation's sluggish economy.
Bryan Stockton, Mattel's COO, said retailers, which can make up to 40 percent of their revenue during the holiday shopping season, are feeling "pretty positive" about the season.
"I think they are feeling like they're well-positioned to have a good holiday," he said in a call with analysts.
Mattel also has some reasons to be confident heading into the winter holidays.
Several of Mattel's toys have made "hot toy lists" for the holiday season. These include Barbie Designable Hair, a $35 Barbie that comes with customizable hair extensions; Figit Friends, $49.99 robotic dolls that respond to touch and voice; and Fisher-Price Laugh and Learn Apptivity Case, a $15 plastic case for iPhones that protect them from toddlers.
Mattel also is coming off a strong third quarter. For the three months ended Sept. 30, Mattel said net income rose to $300.8 million, or 86 cents per share. That compares with $283.3 million or 77 cents per share last year. Earnings matched analyst expectations, according to a FactSet poll.
Revenue rose 9 percent to nearly $2 billion from $1.83 billion a year ago, beating analyst expectations of $1.97 billion. Revenue rose 6 percent in the U.S. and 13 percent internationally.
Revenue from Mattel's entertainment division, which includes games and puzzles, rose 14 percent, mostly due to "Cars 2" toys. Revenue of the Barbie doll, which has been a strong seller for the past two years, rose 17 percent worldwide.
Per E. Ostlund, an analyst at Jefferies, praised Mattel's revenue results and cost controls for the third quarter. But he said the erosion of its gross margins during the period _ 47.8 percent compared with prior year rate of 51.1 percent _ was disappointing.
"A largely (currency)-driven contraction in gross margin was surprising, but offset by strong selling and administrative expense controls," he said.
Going forward, Stockton said the El Segundo, Calif.-based company is focusing on growth internationally. That's where it makes about half of its revenue _ excluding the American Girl brand _ and it has recorded eight quarters of growth.
Stockton said the company hopes to capitalize on developing markets like Latin America and Asia, where the population of middle-class children is expected to grow 50 percent in the next five years.