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Barbie resurgence boosts Mattel 4Q profit

January 29, 2010 5:53:34 PM PST
Barbie proves there is life after 50, especially if you're willing to keep reinventing yourself.

Sales of Mattel Inc.'s fashion icon, which celebrated five decades last year, increased for the first time in almost two years, helping put some holiday cheer into Mattel's 4th-quarter earnings report Friday.

That and cost cutting helped the No. 1 U.S. toy maker's fourth-quarter profit jump 86 percent on a 1 percent sales increase.

"Barbie is back," said CEO Bob Eckert.

Mattel seems to be back as well. The better-than-expected earnings are a big improvement from last year, the weakest holiday season in decades, when Mattel's profit slid by nearly half and revenue dropped 11 percent.

The improvements stem from price increases taken over the past year and a global cost-cutting program. During the year the company cut jobs, improved its supply chain, reduced the number of items it is developed and slashed capital spending to offset weak sales.

Sales of Barbie -- who turned 50 last year -- rose 12 percent in the quarter, including a 9 percent rise in the U.S. and a 14 percent jump internationally.

Key items were Barbie's new Fashionista line, which are smaller, more bendable Barbies accompanied by fashionable accessories; "I Can Be" Barbies, which depict Barbie in career outfits; and accessories such as a camper and townhouse.

The sales increase was "by far the biggest increase in Barbie sales in over 10 years," said Needham & Co. analyst Sean Needham.

And the brand continues to show momentum, after stagnation for several years. Eckert said Barbie market share and retail orders are up so far this year.

"I think the product line has turned a corner," said BMO Capital Markets analyst Gerrick Johnson. "It looks sharper, more relevant than it has in the past."

Hot Wheels was another outperformer, with sales up 16 percent. Basic cars and track sets plus a Color Shifters set that changes color when wet were big sellers.

One weak spot was Fisher Price, where sales fell 3 percent, hurt by lower sales of higher-priced items.

During the three months ended Dec. 31, Mattel profit rose to $328.4 million, or 89 cents per share, during the quarter. Excluding a tax benefit, earnings totaled 81 cents per share -- handily beating Wall Street forecasts of 68 cents per share.

Sales climbed 1 percent to $1.96 billion.

Eckert said some revenue was possibly lost due to cautious retail ordering and Mattel's own inventory tightening -- inventory was down 27 percent from a year ago. He said the company might have been able to sell more items such as MindFlex, a game that measures brain activity, and Barbie Fashionistas, if more had been in stock.

"We clearly left some business on the table," he said. But he said that keeping inventory low was necessary because of the weak economy.

BMO's Johnson said that problem is better than having too much inventory that needs to be discounted to unload. And he said that, although sales overall were somewhat weak, the fact that core brands like Barbie and Hot Wheels are doing well is key.

They are set up nicely for 2010," Johnson said.

Mattel shares fell 19 cents to $19.85 in midday trading, after a rocky opening, when shares dropped 5 percent to $19.07 before recovering. Some analysts said the drop had to do with investors expecting higher sales, and others said an Eckert comment during the conference call about favoring dividends over stock buybacks.

In 2010, Mattel is adding more entertainment properties to the mix, debuting new product lines for World Wrestling Entertainment and Thomas and Friends. And Mattel is developing toys for the "Toy Story 3" movie, which opens in the summer.

Mattel, in the midst of a legal battle over pouty-lipped Bratz dolls, said it had a line ready to go for spring, but that has been shelved because a judge halted the transfer of Bratz lines from creator MGA Entertainment to Mattel until it can rule in an appeal of the lawsuit.

For the full year, Mattel earned $528.7 million, or $1.45 per share. That's a 39 percent increase from its 2008 profit of $379.6 million, $1.04 per share. Full-year sales slipped 8 percent to $5.43 billion.


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