MAT Mattel Inc

NEW YORK--Mattel Inc.'s (MAT) quarterly results had Wall Street worried its collective gift haul would be light and last-minute this holiday season, and investors wondered why American parents were buying markedly fewer of its Fisher-Price products even before a recent safety recall.

Mattel said Fisher-Price sales slid 7% in the U.S. during the September quarter, which seems a problem isolated to here, as they were up 5% internationally if the six percentage points lost on unfavorable foreign-currency-exchange rates are added back. The nation's largest toy maker by sales warned consumers are still cautious and will likely mimic their back-to-school season buying habits of waiting on purchases until they become necessary.

Its stock was off 7.2% at $22.27 in Friday afternoon trading, while its smaller rival Hasbro Inc. (HAS) sank 2.2% to $44.95 a share.

Mattel, which makes iconic Barbie dolls--sales of which were up 6% worldwide last quarter--and Matchbox, Hotwheels and Tyco toycars--down 5%--had a rough time of foreign currency exchange rates. Foreign exchange conspired to turn a 5% year-over-year increase in total quarterly sales into just a 2% bump, and Mattel singled out Venezuela in particular as a drag in Latin America.

Sales were aided by merchandise tied to the animated blockbuster movie "Toy Story 3," and new toys based on World Wrestling Entertainment Inc. (WWE) characters, while overall profits were bolstered by foreign tax credits and cost cuts. Mattel said costs associated with the recall, of some 11 million tricycles, high chairs and other products announced on the last day of the September-ended quarter, would likely be capped around the under $8 million it has already reserved to deal with the matter.

Mattel spoke little about Fisher-Price sales after the recall, saying it was too early to tell the effects of public perception and its newly rejiggered marketing efforts. A spokeswoman said only that sales had been soft at Fisher Price since last holiday season, but "the trend has improved in recent weeks."

On a conference call to discuss results, management noted some of its wares, like "Monster High"-themed products and a dancing Mickey Mouse doll, would likely fail to meet customer demand this holiday, something not uncommon for items among a year's top holiday sellers. The cost of materials, labor and shipping will likely continue to rise, Mattel said, which would result in higher toy prices at stores next year compared with this year. During the third quarter, however, Mattel was able to lower its own costs, as reduced selling and administrative expenses, coupled with lower interest expense and a lower provision for income taxes, caused its net margins to jump despite a slight narrowing in its gross margin.

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

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