Strong sales of Barbie and toys tied to the "Toy Story 3" movie
helped Mattel Inc.'s (MAT) second-quarter profit more than
double.
Shares of the world's largest toy maker by revenue, however,
fell after higher expenses pushed earnings slightly below analysts'
recently rising expectations.
Mattel shares, which had risen 15.1% this year on optimism that
the economic recovery and improving consumer demand were on track,
fell 8.2% to $21.12 in recent trading.
Shares of Hasbro Inc. (HAS), which reports results Monday, also
fell Friday, recently trading down 4.1% to $39.39.
Mattel Chairman and Chief Executive Robert Eckert said he
expects the strength of core and newer toy lines, such as the
"Monster High" franchise hitting stores, will benefit the company
during the all-important holiday selling season.
"In general, we've seen good momentum across the [product]
portfolio and around the globe," Eckert said during a conference
call to discuss second-quarter results. And while it's too early to
gauge holiday sales, retailers are supportive of Mattel's new lines
and "things are off to a pretty good start" with the company's fall
lines based on retail sales in recent weeks, he said.
Mattel is hopeful the worst of the hit to demand from consumers
and retailers is behind it, and Eckert said he hasn't really seen
any change in retailers' approach in recent weeks.
Even so, retailers remain cautious in their purchasing.
"I don't think anyone thinks we're back to good growth in this
economy, and I don't think anyone's building inventory in
anticipation of good consumer spending," Eckert said.
Mattel reported a profit of $51.6 million, or 14 cents a share,
up from $21.5 million, or 6 cents a share, a year earlier.
Revenue increased 13%, in line with estimates, to $1.02 billion
as sales connected with "Toy Story 3" made a "stellar
contribution," Eckert said. All major categories posted increases,
but the strengthening of the dollar hurt sales by 3 percentage
points at Mattel, which generates about 20% of its sales in
euros.
Analysts polled by Thomson Reuters most-recently estimated
earnings of 15 cents a share and $1.02 billion in revenue.
"A very strong quarter," said Sterne Agee analyst Margaret
Whitfield. "Q2 is very small in the scheme of things, but I think
the company has the best portfolio of brands for the important back
half of the season."
"Their inventories look good," Whitfield said. Mattel's
inventories rose 1.4% against the 13% sales increase.
Mattel's selling and administrative expenses, though lower as a
percentage of sales than a year earlier and than the first quarter,
rose 12% and were slightly higher than Whitfield had forecast.
Executives said higher severance charges and higher accruals for
expected compensation increases were behind the higher expenses.
Legal expenses tied to Mattel's long-running battle against MGA
Entertainment Inc. over the Bratz doll also rose during the
quarter, but Mattel said the reversal of toy recall-related charges
more than offset the increase.
Mattel, which has been cutting costs the past year, expanded its
toy selection by licensing toys related to recent movies and
television shows, such as Thomas & Friends and World Wrestling
Entertainment Inc. (WWE). Wall Street has high hopes for "Toy Story
3" products, which Mattel said should get a boost in coming
quarters as the movie opens in Europe and as the DVD is released
later this year. And Mattel has struggled to keep up with demand
for WWE products.
Past cost cutting helped gross profit margin rise to 48.1% from
45.2%, in line with analysts' forecasts. Mattel said it is on track
to deliver by the end of 2010 cumulative cost savings at the high
end of its $180 million to $200 million forecast.
Eckert said despite rising costs this year for resins, a key raw
material for toys, and for labor, Mattel doesn't expect to raise
prices on 2010 toys, though he said "it's more likely than not"
that Mattel will boost prices next year.
Near term, Eckert said he worries more about supply-chain
obstacles, such as hurricane-related flooding in Mexico and tight
shipping availability, than about demand.
Wedbush Morgan said Mattel's impressive sales growth is being
partially undermined by "bubbling" cost pressures and foreign
currency. "The company posted impressive top-line growth, but costs
are now the question mark," analyst Chris White said in a note to
clients.
The El Segundo, Calif., company has seen results improve
recently after struggling with dwindling sales during the
recession. Its iconic Barbie continued its rebound from last year,
with second-quarter sales up 6% against a 15% drop in the
prior-year period.
Sales at Mattel's girls and boys brands unit, its biggest arm
and the one that includes the Barbie and Wheels segments, rose 21%.
That was led by a 60% surge in the entertainment segment, primarily
driven by "Toy Story" and World Wrestling Entertainment products.
Meanwhile, Fisher-Price sales increased 4% while American Girl
dropped 4%.
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-948-9145;
maryellen.lloyd@dowjones.com
(Jodi Xu contributed to this article.)
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