Monday saw toy giant Mattel's (NYSE:
) 1Q earnings drop 53%. This fall is partly thanks to expenses
from the company's acquisition of HIT entertainment, though that
cannot take all of the blame. The legendary Barbie and Hot Wheels
brands have also suffered a drop in sales.
CEO Bryan G. Stockton said that the quarter offered no
surprises, and that the losses were offset by strong growth
internationally and with American Girl. He added that, "we have
work to do in certain areas across our portfolio of brands,
countries and customers as we prepare to successfully execute the
all-important holiday season."
Mattel remains the largest toymaker in the world by revenue,
and recent quarters have seen earnings rise. Sales of Barbie and
Hot Wheels have played a large part in that. MAT acquired HIT
Entertainment in February in a $680 million deal, which should
boost the pre-school market thanks to brands like Thomas the Tank
However, rising costs saw Mattel raise prices at the start of
2012. The uncertainty has been fuelled by volatile crude oil
prices and packaging expenses, plus the rising cost of labor in
China's manufacturing hubs.
Mattel's profit has been reported as $7.8 million, or 2 cents
per share, down from $16.6 million, or 5 cents per share, the
previous year. To be fair though, the current quarter includes
acquisition-related charges of 4 cents per share. The company's
revenue fell 2.5% to $928.4 million. That is in contrast to the
average analyst estimate, which sat at 7 cents per share on
revenue of $989 million.
As mentioned previously, the drop in sales of the top brands,
Barbie and Hot Wheels, has hit MAT hard. Gross sales of the boys
and girls brands unit fell 4.4% to $622.2 million. Globally,
gross sales of Barbie fell 6%. Hot Wheels were down 5%, while
Fisher-Price brands sales were pretty much flat.
All of that saw North American gross sales fall 9%, a number
slightly offset by a 7% increase in international gross
On Monday, Goldman Sachs released a research report stating
that MAT indicated that sales at retail were better than retailer
orders, indicating that retail de-stocking drove some of the
decline. In addition, MAT indicated that $25-30 mn of the decline
was due to lower CARS toy sales vs. last year's movie year.
Goldman added that Gross margins were up 130bp to 51%, ahead
of its 49.7% estimate. This was the best gross profit margin for
a 1Q for as far back as its model goes as cost saves run through
the P&L. SG&A, however, came in higher than it had
anticipated ($331 million vs. its $273 million estimate).
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