Mattel Issues 3rd-Quarter Profit Warning

Mattel Inc., the world’s biggest toy maker, said Thursday that third-quarter earnings will fall short of expectations because its largest customer, troubled Toys R Us Inc., slashed orders just before the Christmas season.

The maker of Barbie dolls and Hot Wheels cars forecast profit of 75 cents a share, 4 cents less than the average estimate of analysts polled by First Call Corp. In last year’s third quarter, Mattel earned 73 cents a share.

Mattel also said it will boost its stock buyback program to 15 million shares from 6.5 million. Its shares have fallen 13% in the last week on concern about Toys R Us, which is reducing inventory and redesigning its stores to revive sales.

Toys R Us cut its orders with Mattel by as much as $200 million. The No. 1 toy retailer generated 18% of Mattel’s $4.83 billion in 1997 revenue, according to a regulatory filing.

“They’re going to have a weak year,” said portfolio manager Timothy Ghriskey of Dreyfus Corp. “I don’t think this is any surprise.”

Shares of El Segundo-based Mattel rose 50 cents to close at $29.25 on the New York Stock Exchange. Paramus, N.J.-based Toys R Us’ stock fell 63 cents to $17.25, also on the NYSE.

Mattel made the profit warning after the close of U.S. trading.

This is the second consecutive quarter Mattel has warned that its sales and profit will be hurt by Toys R Us cutting its orders.

Mattel said its full-year profit also will be less than expected, rising to $1.80 to $1.85 a share from $1.65 last year. Analysts’ average estimate was $1.92 a share.

Toys R Us said last week that it will take a third-quarter charge of $495 million to close about 90 stores and fire as many as 3,000 employees to reduce costs. The retailer, which has been losing sales to lower-priced discount chains such as Wal-Mart Stores Inc., also is implementing a just-in-time inventory system to cut storage and distribution expenses.

Toys R Us, which met with Mattel on Thursday to discuss its program, is also expected to meet with No. 2 toy maker Hasbro Inc.

Mattel and Hasbro have been scrambling to tailor their product lines to a world where children are changing the way they play. The two companies have been shedding noncompetitive lines and buying other companies to build market share. Both are trying to rush electronic and computer games to market, and Mattel said earlier this year it is placing a heavy emphasis on foreign sales.

Mattel said Thursday that business with other retailers remains strong. U.S. sales of Barbie dolls rose 22% in the first eight months of this year, and sales of all Barbie products increased 11%. Hot Wheels sales are up 32%, and infant and preschool sales are up 8%.

Mattel’s second-largest customer is Wal-Mart, according to a regulatory filing. In addition to its namesake brands, Mattel makes Fisher-Price toys and Tyco remote-controlled cars.

Mattel has about 293 million shares outstanding.