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Darth Tater vs iPod: Will the toy win?
With Hasbro reaping the benefits of the Star Wars phenom, movies may be making toys cool again.
July 22, 2005: 2:13 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - The "Force" promised to deliver, and it did both at the box office and the cash register for Hasbro.

Some industry analysts say Hasbro's success with "Star Wars", and more toys tied to this year's blockbuster hits including "Batman," the "Fantastic Four" and the much-anticipated "Harry Potter" movie due in the fall, may be just what the doctor ordered for the troubled toy industry.

No doubt, Hasbro (Research) really needed something to get Wall Street excited again, especially after the No. 2 toymaker after Mattel (Research) caught investors off-guard by posting an unexpected loss in the previous quarter.

Hasbro's better-than-expected second-quarter profit, boosted by strong sales of Star Wars licensed toys seemed to have energized the company's shares Monday.

Jim Silver, a toy industry expert and publisher of Toy Wishes magazine, said Hasbro more than Mattel has positioned itself well to ensure that the sales momentum does carry through into the crucial fourth quarter.

The November-December shopping period typically accounts for over 70 percent of toy shipments to retailers and over 50 percent of all toy retail sales.

Said Silver, "Hasbro has other new Star Wars toys coming out in the fall timed to the release of the Star Wars DVD."

More importantly, Silver said Hasbro this year is well-prepared to combat the iPod challenge -- a good thing given that iPodmania is hotter than ever -- with a slew of new electronic toys such as the iDog and the ION gaming system.

Toy manufacturers and retailers both have struggled with sales in recent years as kids migrate away from of "traditional" toys at an earlier age in favor of hipper gadgets and gizmos like the digital cameras and MP3 players.

In fact, total toy sales in 2004 came in at $20.1 billion, essentially flat versus the previous year.

But even though the fourth-quarter is tilted in Hasbro's favor, Silver said beyond that it's still a question mark.

"I don't think toys were ever 'uncool.' Certainly toymakers have to reinvent themselves every year to keep kids interested," said Silver, adding that Hasbro has made more of an effort this year on that issue than its top rival.

"Mattel on the other hand, has not been as aggressive as Hasbro is chasing the hot trend, which is electronics," he added.

Mattel, which also reported its quarterly results on Monday, missed analysts' estimates as sagging sales of its flagship Barbie pulled down second-quarter earnings.

The toymaker also said that the rest of the year would be challenging due to higher oil and labor costs.

"Oil prices are particularly important to toy manufacturers because they impact the cost of resin and plastic used to make toys," Silver said.

Anita Fraizier, toy industry with NPD Funworld, said she's optimistic that strong sales of licensed movie toys this year could help to offset some of the macroeconomic pressures.

"I always thought this would turn into a good year overall for the toy industry," said Frazier.

While she expects consumer electronics will continue to eat away at traditional toy sales, she said consumers will increasingly see more toymakers incorporate electronic features into toys.

Regarding Mattel's struggle with Barbie, Frazier declined to comment specifically on the issue. However, she did point out that overall dolls sales year-to-date until May were down 6 percent versus the same time a year ago.

"It's still important to remember that a bulk of toy sales happen in the fourth quarter. So this may change later in the year," she said.  Top of page


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