Sad about the recent demise of Toys “R” Us? So is Mattel.
The New York-based toy manufacturer lost more than $240 million last quarter, more than quadrupling its loss from the same three months of 2017. It blamed the liquidation of Toys “R” Us for a 14% drop in net sales. Shareholders were clearly taken by surprise; Mattel’s stock dropped nearly 9% in after-hours trading.
But you may want to save your sympathy for the company’s employees. More than 2,200 of them, representing 22% of Mattel’s non-manufacturing workforce, are being let go, the company said.
Their fate may have been hastened by the disappearance of Toys “R” Us stores, but Mattel’s misfortunes predate the loss of what had once been a major customer.
“We see a lot of opportunities, but there has been a big discrepancy between our financial performance over the last few years and where the company should be,” said Ynon Kreiz, a Mattel director since June of last year, who stepped into the chairman and CEO role in April. He replaced Margo Georgiadis, who left the company after 14 months to become CEO of Ancestry.com. (Even by Mattel’s standards, it was a short tenure—the two CEOs before her lasted two years and three years, respectively.)
If Mattel can’t seem to hang onto its CEOs, the company has done a much better job holding onto the woman who matters most around there: Barbie. The indefatigable queen of toys accounted for more than $170 million of the company’s $954 million in gross sales in the second quarter. Even with the impact of the Toys “R” Us closures, estimated to have been an 11% drain on worldwide revenue from Barbie (in North America, the impact was even more pronounced, at 23%), the brand produced a 12% sales gain globally. Sales of Hot Wheels, a slightly smaller business at $164 million last quarter, more than offset a 10% hit from Toys “R” Us to grow 21% from the same quarter a year ago.
Mattel is having to manage growth in these power brands alongside a steep drop in revenue from American Girl dolls and the impact on international sales from a recent strengthening of the US dollar. On a conference call with analysts, Kreiz blamed the 33% sales drop for American Girl on a misguided effort to turn what had been considered a premium brand into a mass-market business, and promised a correction in strategy. He also said Mattel had a misstep in China, where an overly optimistic forecast for business in the first quarter left the company with excess inventory to work through in the second.
Kreiz said his goal now is to transform Mattel from a manufacturing-based company to one where the biggest assets are intellectual property, not toy factories. To that end, the company said today that it plans to sell its manufacturing sites in Mexico.
Investors will no doubt be looking to Kreiz, a former venture capitalist and television-production executive, to revive Mattel’s earnings in a post-Toys “R” Us world. But as Barbie keeps powering past all of the roadblocks thrown in the company’s way, Mattel’s future also seems to rest on one woman’s impossibly narrow shoulders.