In Weak Season for Toys, Mattel Sees a 4th-Quarter Loss
Blaming hard times in the toy industry, Mattel said Friday that it expects to report a loss for the fourth quarter.
And while analysts are not willing to predict that the nation’s children will be unwrapping a lot of socks this holiday season, toy sales for December and the entire year may be flat--or could even decline--compared to last year.
“It clearly is not going to be one of the better years” for the toy industry, said Harold Vogel, an analyst with the Merrill Lynch brokerage firm. “Consumers are holding onto their money more than usual, and there are no major hit products.”
Mattel, the nation’s second-largest toy maker, did not specify the size of the expected loss for the last three months of this year. In the same period of 1985, Mattel reported net income of $5.4 million on sales of $244.3 million.
Comparative Earnings
In the first three quarters of this year, Mattel has earned $18.6 million on sales of $786.8 million. In the first nine months of last year, net income was $73.4 million, boosted by $19 million in tax credits, and sales were $806.7 million.
Mattel’s announcement came two days after Stephen Hassenfeld, chairman of toy industry leader Hasbro, predicted that his company’s fourth-quarter revenue would increase 8.5% and that revenue for the year would rise about 8%. Hassenfeld, in a speech to analysts, did not project net income figures, but recently he said he expects Hasbro to report “relatively flat” earnings for the year.
Mattel’s problems have stemmed in part from the declining popularity of its Masters of the Universe line, said analyst Gregory H. Kieselmann of the Morgan, Olmstead, Kennedy & Gardner investment firm in Los Angeles.
Few New Enthusiasms
Mattel cited a “generally weak U.S. toy retail environment” in its announcement Friday.
Further evidence of this trend came Friday on the New York Stock Exchange, where Toys ‘R’ Us shares closed at $27.75, off 87.5 cents, on heavy volume of nearly 2 million shares. Analysts said the drop was due to continuing fears of weakness in the Christmas selling season.
“There really are not that many hot new products that are grabbing the attention of kids, except these laser toys,” Kieselmann said. Those toys include Lazer Tag and Photon, guns that shoot beams of infrared light at targets worn by other players.
“They are controversial, and a lot of parents won’t buy them even though their kids want them,” Kieselmann said. Also, “kids are buying all sorts of things like CDs (compact discs) and Walkmans that go way beyond the realm of toys,” he said.
David Leibowitz, an analyst with American Securities in New York, said he expects toy sales for the year to remain unchanged or to decline as much as 3% or 4%. Although plush, talking toys and laser toys are becoming popular, many were introduced late in the year, he said.
“What we’ve seen in the last three or four years is a game of chicken played by the retailer and the consumer,” Leibowitz said. “The consumer doesn’t want to buy anything unless there is a markdown or rebate, and the retailers want to protect their margins and hold off marking down merchandise till the 12th hour.
“I’m of the opinion that when the smoke clears, the consumer will become a buyer, the retailer will have moved a lot of products off the shelf, (and) profits will be thinner than originally hoped,” he said.
Kieselmann said he expects December toy sales to decline 3% to 5% while Morgan, Olmstead anticipates that overall retail sales will rise 3% to 5% during the crucial holiday selling season.
THE TOY HIT PARADE 1. G.I. Joe (Hasbro) 2. Teddy Ruxpin (Worlds of Wonder) 3. Lazer Tag (Worlds of Wonder) 4. Barbie (Mattel) 5. Pound Puppies (Tonka) 6. Cabbage Patch Kids (Coleco) 7. Cricket (Playmates) 8. Baby Talk (Galoob) 9. Photon (LJN Toys) 10. Transformers (Hasbro)
