Mattel posts profit; Barbie's new online venture

NEW YORK (CNNMoney.com) -- Toymaker Mattel on Monday posted first-quarter profits, versus expectations for a loss, as strong sales of its pre-school Fisher-Price toys and its Hot Wheels toys for boys offset a 21 percent drop in U.S. sales of Barbie dolls.

El Segundo-based Mattel (Charts), the No. 1 toymaker ahead of Hasbro (Charts), reported a profit of 3 cents a share for the quarter, down from 8 cents a share for the same period a year ago.

The Fisher-Price "Smart Cycle" is expected to hit stores this July.

Sales rose to $940.3 million, up 19 percent compared to $793.3 million last year.

Analysts, on average, had forecast Mattel to log a loss of 5 cents a share for the quarter and sales of $848 million, according to Thomson Financial

"While not a particularly significant quarter within the seasonal toy industry, our positive first quarter results are a good start to the year," Mattel CEO Robert Eckert, said in a statement.

For most toymakers like Mattel, Hasbro, MGA Entertainment and Jakks Pacific (up $0.00 to $25.60, Charts), the fourth quarter, which includes the all-important holiday shopping season, is the most critical selling period of the year as it accounts for as much as 80 percent of their annual profits and sales.

Mattel said worldwide gross sales for the flagship Barbie brand were up 2 percent, with increases in international markets offsetting declines in its domestic market.

However, during a conference call with analysts to discuss its results, Mattel executives said U.S. Barbie sales dropped 21 percent during the quarter. This is a big problem for the toymaker since industry analysts estimate that Barbie accounts for more than 20 percent of the company's sales and over 30 percent of its profits.

The company does not break out sales and profits for its different toy brands.

Mattel has struggled to fend off growing competition to Barbie from Bratz dolls, produced by MGA Entertainment.

"For the first part of this year, Barbie was an underachiever," Eckert said during the call which was monitored via Web cast in New York. The company said the brand was hurt by soft sales of Barbie's "Magic of the Rainbow" line and declines in "My Scene" dolls products.

Moreover, Eckert blamed Barbie's underperformance to decline in "shelf space" for the brand at retail stores. "This spring the shelf space for Barbie products was down a bit compared to last spring. We don't think this was a big driver of Barbie's [sales] decline but it worked against us," he said.

Mattel is hoping to turn things around for Barbie later this year, particularly in time for the year-end gift-buying season with new Barbie introductions.

Next week Mattel will unveil its new Barbie initiative called "BarbieGirls."

Industry experts say Mattel is taking the Barbie experience online in a new and innovative way. According to Mattel, the BarbieGirls.com, which will launch on April 26, is a first-ever global online community designed exclusively for girls.

Chris Byrne, an independent toy industry analyst who has previewed the offering, compared it to a MySpace type of experience.

Mattel said the social networking Web site is designed to be a safe place for girls to play and interact online. The company said girls will also be able to "customize" their own virtual character, design their own "room," shop at the mall, play games, hang out and chat live with other girls.

Company executives also talked up the new "Island Princess" Barbie line slated for this year.

Sales of the company's other girls brands were down 8 percent, led by declines in the Winx and Pixel Chix toy lines.

The company said global sales of Hot Wheels products rose 15 percent during the quarter, while its Fisher-Price pre-school division posted a strong 27 percent jump in global sales versus the prior year.

For 2007, Mattel is pinning its hopes on what it called "youth electronics" as a key driver of sales. To be sure, experts say traditional toys such as dolls, action figures and board games face a stiff challenge as kids increasingly opt for gadgets and gizmos like ipods, souped-up cellphones and the latest gaming consoles.

"The youth electronics segment is a growth area for the overall toy business," said Eckert, adding that Mattel is chasing the electronics wave by developing toys with more electronic "built into them."

His pick for this year's hot toy from Mattel Inc. is the Fisher-Price Smart Cycle.

It's a stationary cycle that uses TV plug-and-play technology. Once it's connected, kids hop on and start pedaling and steering their "on-screen vehicle." In the Learning Mode, kids can use the joy stick to play games and learn letters, numbers, shapes and colors.

The Smart Cycle is expected to be in stores this July.

Meanwhile, consumers can also expect moderate price increases for Mattel toys this year.

The company blamed the increase on higher price of raw materials used to manufacture toys as well as escalating labor costs in China, which manufacturers more than 80 percent of toys sold in the United States.