Mattel chairman says toy maker 'created' its own problems

'Our results were not acceptable,' new Mattel chairman says; fourth-quarter profit drops 59%, sales fall 6%

The new chairman of Mattel Inc. said the problems plaguing the toy maker were largely its own fault, mere days after its chief executive abruptly resigned.

Christopher Sinclair, who also took over as interim CEO this week after Bryan Stockton quit, said Mattel "created" its own problems, which include an innovation gap and a failure to promote its brands effectively.

"Our results were not acceptable," Sinclair told analysts and investors Friday in a conference call to discuss Mattel's fourth quarter. "Our performance was impacted by a number of factors, some of which are out of our control, but most of which are not."

Sinclair said Mattel's struggles could be seen especially with its Barbie doll and Fisher-Price brands. Lack of "compelling" new toys contributed to a poor showing during the crucial holiday season, he said.

"Our product innovation was inconsistent," Sinclair said. "Some brands performed well, but many did not."

In the three months ended Dec. 31, Mattel said net income fell 59% to $149.9 million, or 44 cents a share. Sales dropped 6% to $2 billion, the fifth consecutive quarter of declines.

For the year, Mattel reported net income of $498.9 million, or $1.45 a share, down 45% from $903.9 million, or $2.58, in 2013. Sales dropped 7% to $6 billion.

Barbie posted an additional 12% drop in the quarter. American Girl slid 4%. The infant and toddler line Fisher-Price was down 11%. One bright spot was Hot Wheels, which was up 5%.

Observers said Mattel has failed to keep pace with changes in the U.S. population. Although Americans have become more racially diverse, for example, its Barbie doll has remained for the most part white, blue-eyed and blond, said Jim Silver, editor in chief of toy review website TTPM.

"It's hurt them as demographics of the U.S. have changed," Silver said. "You didn't see diversity in Barbie in previous years."

The rousing success of Disney's blockbuster "Frozen" film, with its huge armada of related dolls, dresses and other merchandise, also affected Mattel, even though the toy maker did a brisk business in selling licensed "Frozen" products, analysts said.

Sinclair said Mattel's fashion dolls — which account for about 40% of business — lost ground to "Frozen." The company also lost the doll licenses to Disney's princess brands, including Frozen, to rival Hasbro starting next year.

"We were impacted by the most dynamic and challenging environment in the doll category that we've seen in many years," Sinclair said.

Going forward, the new chairman, who has sat on Mattel's board since 1996, said he's focusing on evaluating all aspects of the company and improving marketing and performance overall. He said he's working with the board to look for CEO candidates inside and outside Mattel.

Sinclair said bringing back Richard Dickson, who led Barbie during its last surge of popularity around 2010, was key to unblocking the creative juices at Mattel.

"Part of it is also broadening our outreach for innovation," he said. "There's a lot of people and vendors in the marketplace that we've had to rekindle our relationships with."

Dickson and Tim Kilpin, who directs sales and marketing globally, are leading internal contenders for the CEO job, analysts said. Both were named president this month.

The pair have already helped defuse tension between Mattel's international and North America divisions, which created problems in the past, Silver of TTPM said, adding that employees have remarked on an improvement in the working environment in recent days.

"In the past two years, those two segments did not work well together and it was a major cause of things not getting done and people not being on the same page," Silver said. "Now Tim and Richard are in charge, and these two get along very well."

Some observers questioned whether Mattel could turn around its fortunes in time for the next holiday season.

"Sinclair does not seem like he can impact the situation much in the near-term," Linda Bolton Weiser, senior analyst at B. Riley & Co., wrote in a client report. "We wonder how much holiday 2015 can be influenced if it takes several months to get a new CEO in place."

Mattel's stock closed Friday at $26.90, unchanged from Thursday.

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