Take that, 'Bratz': Barbie boosts Mattel

No. 1 toymaker logs better-than-expected profits and sales in the crucial year-end holiday quarter; must-have T.M.X. Elmo also key.

By Parija B. Kavilanz, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Mattel, the No. 1 toymaker, on Monday reported better-than-expected fourth-quarter profits and sales, boosted by improved sales of its flagship Barbie brand and strong sales of its Fisher-Price pre-school toys division.

El Segundo, Calif.-based Mattel (Charts) logged net income of $286.4 million, or 75 cents a share for the quarter, up from $279.2 million, or 69 cents a share from a year ago.

Shoppers rushed to score a T.M.X Elmo for Christmas, thus making it one of the hottest toys of the holiday season.

Analysts had forecast a profit of 67 cents a share for the quarter.

For the year, the company reported net income of $592.9 million, or $1.53 per share, compared to last year's net income of $417.0 million, or $1.01 per share.

Sales for the quarter rose 14 percent to $2.11 billion from $1.84 billion last year.

"We made good progress in addressing the two key challenges facing the company - U.S. sales declines in the Barbie brand and pressure on our gross margins," Mattel CEO Robert Eckert said in a statement.

The company said worldwide Barbie sales rose 3 percent for the quarter, marking four consecutive quarters of U.S. sales growth for the brand. Mattel has struggled to advance Barbie sales in the face of stiff competition from MGA Entertainment's hugely popular "Bratz" dolls.

Fourth-quarter sales of Mattel's Fisher-Price division jumped a strong 16 percent, the company said.

Fisher-Price scored a runaway hit over the holiday with the 10th anniversary T.M.X. Elmo, which became one of the most sought-after toys for Christmas.

Although Mattel didn't break out sales of Fisher-Price's T.M.X. Elmo in its earnings report, industry analysts had expected the company to benefit from Elmo's must-have status.

In a conference call with analysts to discuss its results, Eckert drew attention to what he called the "unparalleled launch of T.M.X. Elmo" and its contribution to the success of the Fisher-Price division.

"Ten years ago when the first Elmo came out, we believe we sold over 1 million of those dolls. T.M.X. Elmo has done the strongest in sales since then," Eckert said. "There was a halo effect with T.M.X. generated by all the publicity and excitement that the rest of the Sesame Street products benefited from as well."

Regarding sales for the American Girl brand, Eckert told analysts that although the brand "had a record year," the overall performance "didn't meet expectations."

For the quarter, sales of American Girl products up 2 percent, the company said.

Eckert said Mattel was introducing several initiatives to rev up the brand's performance. For instance, the company is expected to open a new American Girl "boutique/bistro" concept in mid-to-late 2007 with one location in Dallas and the other in Atlanta. Both locations will feature a "party room" where girls can hold American Girl-themed events with their friends, Eckert said.

Toy prices going up?

Even as oil prices have come down in recent months, Eckert said the price of resin, an oil-based compound used to manufacture toys, hasn't.

That, along with increases in labor prices in China, which accounts for more than 90 percent of the world's toy production, means that the industry will see some price increases at the retail level, he said during the call.

"We have to do what we have to do if prices for raw materials [and labor] remain high," he said.

At the same time, Eckert said he was comforted by the fact that higher-priced toys have been selling well.

"A lot of people focus so much on price points. But the industry has proved that if you innovate, consumers will step up and pay more for good toys," he said.

Hasbro Inc. (Charts) will announce results Feb. 9 as it hopes toys based on summer film releases of "Spider-Man 3" and "Fantastic Four: Rise of the Silver Surfer" boost 2007 earnings. JAKKS Pacific Inc. (Charts) also competes in the industry.

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