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Struggling Mattel warns of slumping holiday sales as debt ratings are cut

Struggling Mattel warns of slumping holiday sales as debt ratings are cut
A building on Mattel Inc.'s El Segundo campus. (Damian Dovarganes/Associated Press)

Mattel Inc.’s struggles deepened Monday as the El Segundo toy maker warned of slumping holiday sales and its debt was downgraded by the major credit-rating firms.

With only two weeks until Christmas, Mattel said in a securities filing that its fourth-quarter sales would be “negatively impacted” because of “certain underperforming brands” and because retailers were tightly controlling their inventories this holiday season.

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As a result, Mattel — whose brands include Barbie, Fisher-Price and Hot Wheels — said its full-year sales would drop by “a percentage in at least the mid-to-high single digits” compared with 2016, when sales totaled $5.5 billion.

Mattel said its profit also would suffer because the sales slump meant the company would have to write down the value of its inventory and offer discounts to retailers to clear out unsold products.

Those problems are why S&P Global Ratings and Fitch Ratings further downgraded the company’s debt, which already was below investment grade. The downgrades came as Mattel plans to sell an additional $1 billion of high-yield debt.

Nonetheless, Mattel’s stock rose 33 cents to $15.37 a share Monday. That gave Mattel a total market value of $5.3 billion.

Mattel’s sales have been dropping since 2013 and early this year it hired a new chief executive, Margo Georgiadis, a former Google executive who is trying to turn things around and lower the company’s costs. Among other things, Mattel in October suspended its quarterly dividend.

In the meantime, speculation persists that rival toy maker Hasbro Inc. has offered to buy Mattel, although no deal has been announced and both companies repeatedly have declined to comment on the rumors.

Hasbro’s brands include Transformers, G.I. Joe and “Star Wars” figures, games such as Monopoly and Littlest Pet Shop toys.

In downgrading Mattel’s debt, Fitch Ratings cited Mattel’s “execution missteps, including the inability of the company to effectively respond to evolving play patterns” among children, along with such challenges as retailers cutting back on purchases to keep their inventories lean.

Mattel has “been challenged by the phenomenon of children — in particular, girls — outgrowing traditional toys at a younger age, with greater interest in consumer electronics, beauty, sports and social media,” Fitch Ratings said.

Also pressuring sales was Toys R Us Inc.’s decision in September to file for bankruptcy protection. Toys R Us continues operating while working out a reorganization plan.

S&P Global Ratings, in explaining its downgrade of Mattel’s debt, also cited “declining sales trends in certain key product lines, such as American Girl and Thomas” the Tank Engine train toys.

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