UPDATE 5-Mattel Q4 profit disappoints; tough road ahead

* Q4 net EPS $0.49 vs Wall Street view of $0.71

* Q4 sales down 11 percent to $1.94 billion

* To focus on costs, spending cuts in 2009

* Prices raised on spring toy lines effective Jan. 1

* Mattel shares down 15.1 pct; Hasbro falls 8.3 pct
(Adds paragraph 7 about Barbie sales)

By Aarthi Sivaraman

NEW YORK, Feb 2 (Reuters) - Mattel Inc MAT.N posted a
quarterly profit far below Wall Street estimates, crushed by
weak sales and a stronger dollar, and forecast continued
pressure, sending shares down 15.1 percent.

But the world's largest toy maker plans to hunker down and
take steps in 2009 to reverse its fortunes next year, Chief
Executive Robert Eckert said on Monday, describing his outlook
as more realistic than pessimistic.

"Our guiding principles for 2009 are to reduce spend in all
areas of the business, work smarter and more effectively, and
extract every efficiency we can out of this supply chain in
order to deliver improved profitability, better execution and a
stronger, well-positioned Mattel for 2010," Eckert said.

Mattel fell prey to deep consumer cutbacks in its fourth
quarter -- a period including the holiday shopping season that
was expected to bring more sales for toy sellers than many other
companies. But the recession, job losses and a credit crunch led
consumers to pare spending even on their children.

Retailer Toys "R" Us, for example, said in January that
sales had declined at both its domestic and international
businesses in the 2008 holiday season. Mattel's rival Hasbro
HAS.N, whose shares were down 8.3 percent on Monday, is due to
report results next week.

The weakness across virtually every category "showed the
depths of the global economic contraction," given the quarter is
key and driven by reorders, Wachovia Capital Markets analyst Tim
Conder said in a note.

Sales of Mattel's flagship Barbie fell 21 percent in the
quarter, a grim sign for the toymaker, which is building a
campaign for the doll's 50th anniversary next month.

This year, Mattel faces the added pressure of having no toys
tied to movies. Hasbro, on the other hand, is expected to gain
from toys related to the "Transformers - Revenge Of The Fallen"
and "G.I. Joe - The Rise Of The Cobra" movies to be released
later this year.

Mattel said it raised prices in the mid-single-digit range
effective Jan. 1 on its spring toy lines.

INVENTORY 'SHOCKING'

Mattel said net profit fell to $176.4 million, or 49 cents a
share, from $328.5 million, or 89 cents a share, a year
earlier.

Analysts on average were expecting the company, which also
makes Hot Wheels, to earn 71 cents a share, according to Reuters
Estimates.

Sales fell 11 percent to $1.94 billion. Its sales suffered a
setback of 5 percentage points due to the stronger dollar --
nearly half the percentage value of its sales decline.

While domestic gross sales fell 6 percent, international
sales, which account for a significant portion of revenue, were
down 20 percent, Mattel said.

But the "really shocking" aspect of Mattel's results was its
inventory level, up 13.3 percent from a year ago to $485.9
million, said BMO Capital Markets analyst Gerrick Johnson.

"That means things deteriorated much more quickly than they
had planned," Johnson said.

"There is no reason for them to have extra inventory for the
first quarter, because they have no entertainment properties
this year. It also might mean the first quarter's going to be a
lot weaker than we thought because it means they probably
brought inventory into the country to distribute for spring, but
retailers were like, 'Ah no thanks, keep it.'"

Mattel announced in November that it would shed about 1,000
jobs, saying at that time that it was facing one of the most
challenging periods in the past century.

Mattel's shares were down $2.14 or 15.1 percent at $12.05,
off an earlier low at $11.31, on Monday afternoon on the New
York Stock Exchange.
(Editing by Lisa Von Ahn, Derek Caney and Matthew Lewis)