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Mattel Profit Falls By Nearly Half On Weak Toy Season

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NEW YORK — As toy maker Mattel Inc. reported that its profit fell almost by half for the key fourth quarter and more than one-third for the year, it said Monday that it will raise its prices and cut its 2009 spending, including on advertising.

Analysts had expected Mattel to report weak results for the quarter that included the worst holiday season in decades. But the company's profit and sales fell further than most predicted, and its shares fell more than 16 percent in trading Monday.

Toys tend to resist economic strain better than many products because parents tend to keep spending on their children even when they spend less on themselves and on household goods.

But Mattel enjoyed no such buffer as its fiscal 2008 came to a close.

Chairman and CEO Robert A. Eckert said in a call Monday with investors that lackluster sales, lower gross margins and higher expenses led the company to miss analysts and its own estimates for the quarter and all of fiscal 2008.

The weak results seemed to hit chief rival Hasbro Inc.'s stock as well. Its shares fell $2.20, or 9.1 percent, to $21.93.

Sales declined across most of Mattel's top brands, including a 21 percent drop at Barbie, a 22 percent drop at Hot Wheels and a 9 percent drop at Fisher-Price. One bright spot in the quarter, which ended Dec. 31, was American Girl dolls, which saw sales rise 5 percent to $254 million.

"While we expected any surprises to be negative, the breadth of the weakness is worse than we anticipated," said Needham & Co. analyst Sean McGowan.

Sales were markedly worse than previous quarters. In the prior quarter, for example, Barbie and Hot Wheels sales were down 1 percent and Fisher-Price sales rose 7 percent compared with the third quarter in 2007.

And in 2007's fourth quarter, Barbie sales rose 4 percent, Hot Wheels rose 21 percent and Fisher-Price rose 15 percent.

During the fourth quarter of 2008, Mattel said it would cut 8 percent of its work force, or about 1,000 jobs. On Monday, it detailed planned cuts in its ad budget and the number of products it makes, particularly for girls.

At the beginning of January, it implemented a mid-single-digit percentage price increase on its spring line of toys to cover higher commodity costs and other factors.

"Our goal in 2009 is to improve the profitability of the business by looking at all areas, from (human resources) to marketing and all functions in between, with the relentless pursuit of cost reductions _ including reducing the number of underperforming stock-keeping units and tightening our infrastructure," Eckert said.

New Mattel products coming in 2010 include toys related to Thomas and Friends and World Wrestling Entertainment. A new Toy Story movie in fiscal 2010, lower legal costs and a general economic rebound will also likely help the toy maker's results, Needham added, and he rates the company's stock a strong buy.

For 2009, however, the company is focusing on improving its profitability and execution.

"Clearly Mattel expects 2009 revenues to be challenged," Needham said. "Toy sales have not been recession-proof, the global recession is deep and worsening, and demand is likely to remain weak."

The company said quarterly profit fell to $176.4 million, or 49 cents per share, from $328.5 million, or 89 cents per share, a year earlier.

Revenue fell 11 percent to $1.94 billion from $2.19 billion, including a 6 percent decline in the U.S. and a 20 percent drop internationally.

The strengthening dollar's impact lowered sales 5 percentage points.

Analysts polled by Thomson Reuters, on average, predicted a profit of 72 cents per share on revenue of $2.2 billion.

The results fell so far short that its shares dropped $2.29, or 16.1 percent, to close at $11.90 Monday.

Mattel said it had hefty one-time costs during the quarter related to its lawsuit against MGA Entertainment Inc., which makes Bratz dolls, and to toy-safety lawsuits. Legal costs totaled about $52 million for the year.

A jury has found that Bratz doll designer Carter Bryant developed the concept for the dolls while working for Mattel. MGA must eventually stop selling the dolls.

Mattel said it was preparing for more litigation with MGA related to trade secrets.

For the year, the El Segundo, Calif.-based company's profit fell 37 percent to $379.6 million, or $1.05 per share, from $600 million, or $1.54 per share, a year earlier. Revenue edged down less than 1 percent to $5.92 billion from $5.97 billion.