Barbie fails to bewitch kids in America

Toymaker reports in-line earnings, although sales miss forecasts as Barbie's sales fall in the United States.

By Parija B. Kavilanz, senior writer

NEW YORK ( -- Toymaker Mattel Inc. reported higher second-quarter profits Monday that met Wall Street expectations, although U.S. sales of its flagship Barbie brand fell in the period.

El Segundo, Calif.-based Mattel (Charts, Fortune 500), the No. 1 toymaker ahead of Hasbro (Charts), reported net income of $43.1 million, or 11 cents per share for the quarter ended June 30, up from $37.4 million, or 10 cents per share, a year earlier.

Mattel is hoping that the Barbie Girls MP3 player, which hits stores this month, can help rejuvenate sagging Barbie sales in the U.S.

Analysts had expected earnings of 11 cents per share, according to Thomson Financial.

Mattel (Charts, Fortune 500) said net sales climbed to $1.02 billion from the 2006 period, versus estimates for $1.03 billion.

Mattel's international business drove much of its profits and sales during the quarter. On a regional basis, second quarter gross sales surged 18 percent in its international markets, boosted by favorable currency rates, while gross sales declined 3 percent in the U.S.

Worldwide Barbie sales increased 6 percent, helping to offset a 5 percent drop in Barbie sales in the United States. It's American Girl brand also took a sizeable hit as sales tumbled 10 percent during the quarter.

Overall, Mattel's girls division has a challenging quarter with total worldwide sales down 1 percent.

The company's boys division, which includes such brands as Hot Wheels, fared better. Worldwide gross sales for Hot Wheels jumped 20 percent.

And the Fisher-Price pre-school toys brands was another bright spot for Mattel, posting a sales increase of 12 percent for the period.

Elsewhere, sales for Mattel's entertainment business, which includes Radica's electronics games, declined 2 percent.

Gearing up for the holiday wars

For Mattel, Hasbro, Jakks Pacific (Charts) and other toymakers, the real battle for business occurs during the second half of the year, which includes the critical holiday shopping period that's typically responsible for as much as 90 percent of the industry's annual profits and sales.

In a conference call Monday with analysts to discuss the company's results, Mattel CEO Robert Eckert said he "felt good" about the company's competitiveness for the holiday season.

Despite Barbie's lackluster first-half sales at home, Eckert said he was confident that consumers would warm up to some new Barbie product launches in the weeks ahead.

Eckert said, a new "online community" designed exclusively for girls that launched in April, already had 3 million registered users.

The second component of Barbie Girls - the "Barbie Girl" device - which is a doll-shaped MP3 player that comes with its own accessories and is interactive with, hits retail stores this month.

"I feel good with where we are strategically with Barbie," Eckert said.

His other big bet for the holidays is the "Smart cycle" from Fisher-Price. It's a stationary cycle that uses TV plug-and-play technology.

"We are at the highest level of anxiety right now," Eckert said. "There's a big pile of goods that have to be sold for Christmas. But I can say that I'm not more anxious than normal."

Nevertheless, with "Transformers" now a box-office hit, Mattel will face some tough competition especially in the boys category.

Hasbro, which owns the "Transformers" toys license, was banking on the movie's success reigniting sales of its new line of Transformers toys.

Hasbro should shed some light on Transformers sales when it reports its second-quarter results next week.

"The Transformers products look terrific," Eckert said. "There is great competition out there for boys toys. Hot Wheels and Cars are doing very well for us. So we'll see how it works out."

Mattel does not provide earnings guidance. However, analysts on average expect the toymaker to earn 70 cents a share and sales of $1.9 billion in the third quarter and 77 cents a share on sales of $2.1 billion for the fourth quarter.  Top of page