Gloomy Holiday Seen for Toy Sales
Downbeat forecasts Monday from toy makers -- including industry leader Mattel Inc. -- underscored concerns that a wobbly economy and rising gasoline prices might prompt people to pare back holiday spending.
El Segundo-based Mattel, the nation’s largest toy maker, and No. 2 Hasbro Inc. reported slower third-quarter sales and warned that fourth-quarter sales might be affected if what Mattel called a “challenging” environment continued. And educational toy maker LeapFrog Enterprises Inc., citing weak demand, slashed its full-year earnings outlook, sparking a sharp sell-off of its stock.
Toy makers are suffering because some retailers, worried about being stuck with excess inventory, are stocking shelves more thinly this year than last.
“It can’t be good for the industry when major retailers are saying they expect sales of discretionary items like toys to lag until fuel prices come back down and we see more positive consumer attitudes,” Mattel Chief Executive Robert A. Eckert said.
Analyst Felicia Kantor Hendrix of Lehman Bros. forecast a difficult season. “The business is terrible,” she said.
Another analyst, Sean McGowan of Harris Nesbitt, suggested that retailers were cautious only about toys that were “a little long in the tooth.” Toy makers with hot new offerings, he said, should expect robust sales.
And toys aside, some products might even fly off shelves. The Consumer Electronics Assn. said Monday that people were set to spend more freely this holiday season, particularly on electronic gadgets.
About 22% of those polled in a recent survey said they would spend more on all items; last year’s survey found that 19% would spend more.
For toy makers, the winter holiday shopping season is crucial. About 50% of toy sales are rung up in the fourth quarter, according to NPD Group, a market information company.
In the third quarter, Mattel said, net income dropped 5% to $255.9 million, or 61 cents a share, compared with $270 million, or 61 cents, a year earlier. The per-share results matched Wall Street estimates. The company’s worldwide net sales fell 2% in the quarter, to $1.67 billion.
Much of the drop could be attributed to a continued decline in sales of the flagship Barbie line. The doll is in the midst of an image overhaul but hasn’t recovered its popularity.
Barbie sales in the U.S. declined 26% in the third quarter; they were down 13% worldwide. Sales of the Matchbox, Hot Wheels and Tyco brands fell 3%.
Mattel doesn’t give sales and earnings forecasts. But Eckert warned that the remainder of the year would be “challenging.” Smith Barney analyst Jill Krutick said she expected the company’s earnings to be essentially flat in the fourth quarter.
Mattel shares fell 47 cents to $17.50 on the New York Stock Exchange.
Pawtucket, R.I.-based Hasbro posted a 2% drop in third-quarter sales, to $947.3 million from $971.1 million a year earlier, and said it was unlikely to meet sales targets for the year.
“Our plan this year has been to grow both revenues and earnings,” Hasbro CEO Alfred Verrecchia said. “In that context we view our third-quarter performance as disappointing.”
Shares of Hasbro fell $1.20 to $17.26 on the NYSE.
LeapFrog, maker of LeapPad electronic learning books, reported the most dire outlook. The Emeryville, Calif.-based company said third-quarter earnings would be 32 to 34 cents a share, about half what Wall Street expected. And it cut its full-year forecast to 40 cents to 60 cents a share, down from its July forecast of $1.18 to $1.20.
LeapFrog also said it was facing a tough retail environment but added that problems at its new distribution center were also hurting profit. The news came out after the markets closed. Shares of LeapFrog, down 79 cents to $18.20 in regular trading on the NYSE, plunged more than 35% to about $11.50 in after-hours trading.
Times staff writer Alex Pham contributed to this report, and Times wire services were used in compiling it.
