Mattel 3Q profit declines 3 percent as company cuts costs, readies for holiday season

Barbie’s belt tightens: Cost cuts help Mattel 3Q

NEW YORK — Barbie’s budget seems to be paying off.

Mattel Inc.’s belt-tightening helped the No. 1 toymaker report a profit decline of just 3 percent Friday despite a steeper drop in sales, and the company voiced hopes the upcoming holiday season might not be as terrible as some fear.

Investors applauded the company’s inventory and cost cuts, as well as price increases that have stuck, and sent shares up about 5 percent, briefly touching a 52-week high.

The maker of Hot Wheels and American Girl dolls reported fiscal third-quarter profit slipped 3.5 percent to $229.8 million, or 63 cents per share, matching analyst expectations. The stronger dollar, which results in overseas sales translating back into fewer dollars, hurt results by about 10 cents per share.

Sales fell 8 percent to $1.79 billion, as demand waned for Barbie and higher priced Fisher-Price toys such as Power Wheels.

Chief Executive Robert A. Eckert said Friday that revenue “continues to be challenging” because of the economy, stronger dollar and a lack of toys tied to hot movies and other entertainment.

Mattel increased prices earlier in the year to offset higher commodity costs. While prices for raw materials such as oil have improved, the price increases have been kept.

Inventory is down 19 percent from a year ago. But Eckert said the company would have enough toys to cover any surge in demand this holiday season.

“We still have a lot of toys. Retailers still have a lot of toys. The good news is neither of us have as many toys as we had last year at this time,” Eckert said.

Eckert said the company is on track with its cost-cutting plan which has included cutting jobs, improving its supply chain, cutting the number of items it is developing and reducing capital spending. The plan is expected to save $90 million to $100 million in 2009 and $180 million to $200 million in 2010.

Looking forward to the holidays, Eckert said tapped-out parents would have to “make choices” when it comes to buying toys.

“Retailers continue to be reluctant to make inventory bets and it will undoubtedly be a difficult holiday for parents whose job status and financial well-being are uncertain,” he said. However, he added that toys usually perform better in a recession than other industries.

Some Mattel toys that have made “Hot Toy” lists this year include Barbie’s new Fashionista line, talking truck Rocky the Robot and brain-wave reading Mindflex.

The industry outlook for the holidays is uncertain. Industry analysts predict sales will be down 1 or 2 percent from a year ago. And toy retailers already have begun discounting. A promotion by Wal-Mart Stores Inc. is offering 100 toys for under $10.

Earlier in the week Mattel agreed to a settlement — still pending court approval that would resolve will resolve most class-action lawsuits stemming from the company’s 2007 recall of toys made in China that were found to contain high levels of lead.

At the time a lawyer for the plaintiff estimated Mattel’s payout on the case could total $50 million or more, but Mattel said it has $27 million in reserve — including $5 million added during the quarter — and “feels good” about that amount, said CEO Kevin Farr. The exact cost depends on how many buyers make claims.

Mattel also said it plans to launch the Bratz doll line in the spring of 2010. Mattel sued original Bratz maker MGA Entertainment Inc. over rights to the doll and won the first phase of the case earlier this year. They are now in the second phase of the case, which involves trade-secret theft. Other new launches in 2010 include Thomas the Tank Engine and World Wresting Entertainment lines.

Shares rose 91 cents, or 4.7 percent to $20.49 during afternoon trading, after earlier reaching a 52-week high of $21.05.