MAT Mattel Inc

By Paul Ziobro 

Last minute shoppers ruined Christmas for the toy industry.

After posting disappointing fourth-quarter results, Mattel Inc. executives on Wednesday blamed deep discounts in the waning days before Christmas that were needed to help retailers clear unsold Barbie dolls, Hot Wheels sets and other toys.

The move revived lackluster sales for Mattel and the overall toy industry, but at a steep cost in profits. Mattel, the largest U.S. toy maker by sales, reported a 19% drop in earnings during its critical fourth quarter. The company reported a week earlier than planned, and Mattel shares fell more than 10% in late trading to $28.33.

"It was a fairly ugly end to the quarter," said Chief Executive Christopher Sinclair, who last week announced plans to step aside.

The disappointing results marred what had otherwise seemed like a return to stability at Mattel under Mr. Sinclair. Instead, the company's turnaround efforts will be handed over to Margaret Georgiadis, a former Google executive who next month becomes Mattel's third CEO in as many years.

Shoppers did come out during the Black Friday holiday weekend, but during the first three weeks of December, toy sales fell 7%, Mr. Sinclair said Wednesday. "That's when the retail environment became turbulent," he said on a conference call.

Retailers struggled with the sales cadence as well. Toys "R" Us. Inc. Chief Executive David Brandon last week said that the loss of momentum in the toy category caused its competitors to discount aggressively, hurting its overall business. Sales for its holiday period fell 2.5% in the U.S. at stores open at least a year.

The holiday season can easily derail an otherwise successful year in the toy industry, as roughly half of retail sales occur in final months. Mattel executives worked with worried retailers to offer aggressive discounts to get people shopping.

"Because of a very short time frame, we had to activate and execute these programs," Mattel President Richard Dickson said. "We didn't know the financial impact until after year-end."

Mattel logged about 20% of its sales for the quarter in that final week. But the pain was felt on the gross margin, which fell to 47% from 50.2% last year.

Toy sales are also quickly shifting online, creating additional challenges for retailers. One Click Retail, a research firm, estimated that Amazon.com Inc.'s toy sales rose 24% last year, more than three times faster than the overall industry.

The shift to online shopping not only increases price transparency but it reduces shopper visits to stores, which saps toy makers and retailers of impulse purchases.

"Holiday 2016 taught us that extra shopping days and earlier online promotions don't necessarily translate to more overall sales," said Juli Lennett, toys industry analyst at NPD Group.

Mattel's fourth-quarter profit fell 19% to $173.8 million, or 50 cents per share. Global sales declined 8.3% to $1.83 billion, hurt by the loss of the Disney Princess dolls business to rival Hasbro Inc. as well as currency swings. In North America, net sales fell 7%.

Excluding expenses related to acquisitions or asset sales, restructuring costs or currency devaluations, Mattel reported adjusted earnings of 52 cents a share for the quarter. On that basis, analysts were expecting Mattel to report a profit of 71 cents a share.

The report also dragged down rival toy maker Hasbro Inc., whose shares fell 4% in late trading. Hasbro is scheduled to report its fourth-quarter results Feb. 6.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

(END) Dow Jones Newswires

January 25, 2017 21:24 ET (02:24 GMT)

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