Mattel's high-school monsters outshine fading Barbie

Wed Jul 17, 2013 3:18pm EDT

The logo of Mattel is seen outside the company's corporate headquarters in El Segundo, California July 17, 2008. REUTERS/Mario Anzuoni

The logo of Mattel is seen outside the company's corporate headquarters in El Segundo, California July 17, 2008.

Credit: Reuters/Mario Anzuoni

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(Reuters) - Mattel Inc's (MAT.O) quarterly results offered further proof of the fading luster of the iconic Barbie doll, as newer brands including the teen monsters of the company's own Monster High line gained market share.

Mattel shares fell as much as 8 percent after the world's biggest toymaker reported a much weaker-than-expected second-quarter profit. Shares of smaller rival Hasbro fell 3 percent.

Sales of Barbie, long the company's mainstay, fell 12 percent in the second quarter, their fourth straight quarterly decline. Sales of its Other Girls line, which includes Monster High, rose 23 percent.

Sales of American Girl, its popular pre-teen line of chubby faced dolls, grew 14 percent to $78.2 million in the period.

Chief Executive Bryan Stockton said Barbie was "likely being modestly impacted" by the success of the company's newer franchises.

BMO Capital Markets analyst Gerrick Johnson estimated that Monster High, which depicts the teenage descendants of classic monsters such as Dracula and Frankenstein's Monster, has annual sales of more than $500 million just three years into its launch.

Barbie, a 54-year-old brand, has annual sales of about $1.3 billion, he said.

Johnson said the company has been offering promotions for Barbie accessories and clothing, indicating waning interest in the brand.

"If kids are playing with a product line a lot, they will want more accessories and fashions for Barbie," Johnson said. "Accessories are always the first to go."

However, some analysts said Mattel's other doll brands were more than offsetting Barbie's decline.

"Barbie is down 7 percent in the first half, and totaled $387 million in the first half. All other girls products (almost entirely dolls) were up 33 percent in the first half, and totaled $622 million," Needham & Co's Sean McGowan said.

"So, the total of Barbie plus other girls products was up 14 percent."

PLUNGE IN PROFIT

Barbie's weak sales also hurt the company's profit, which fell 23 percent.

"(Barbie) makes up a higher portion of profits because it has very high gross margins, no royalty expense, and efficient advertising expenditures," McGowan said.

Total costs rose 9 percent to $505 million in the second quarter as the company geared up for the second half of the year, when it gets about two-thirds of its sales.

Mattel, which also makes Hot Wheels cars and Fisher-Price baby toys, had said it expected spending to be higher this year than last year as it invests in the new franchises, emerging markets and American Girl stores.

The more expensive American Girl line, which Mattel acquired in 1998, is sold through its own stores or through its website, compared with its other brands that primarily sell through retailers such as Wal-Mart (WMT.N), Target (TGT.N) or Toys R Us TOYS.UL.

Overall sales rose 1 percent to $1.17 billion, missing the average analyst estimate of $1.22 billion.

But, analysts said the company was still doing better than others in the toy industry.

Wells Fargo analyst Timothy Conder said Mattel's retail share gains appeared to have continued in the United States and five key European markets.

The company's second-quarter net income fell to $73.3 million, or 21 cents per share, from $96.2 million, or 28 cents per share, a year earlier.

Analysts on average were expecting earnings of 32 cents per share, according to Thomson Reuters I/B/E/S.

Sales at its main Girls & Boys Brands unit, which includes Barbie, rose 1 percent to $792.4 million during the quarter.

"Our girls portfolio continues to be the engine that's fueling our global growth," CEO Stockton said about the unit that generates about 40 percent of the company's revenues.

Sales of toy cars, including the Hot Wheels and Matchbox brands, fell 6 percent, while sales of pre-school brand Fisher-Price fell 3 percent.

The company also increased its share repurchase program by $500 million.

Mattel shares, which have risen 26 percent this year, fell 6 percent to $43.44 in early trading on the Nasdaq. Shares of Hasbro, which is due to report its results on July 22, fell 2 percent to $46.12.

(Reporting by Dhanya Skariachan in New York and Chris Peters in Bangalore; Editing by Saumyadeb Chakrabarty)

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