Toymaker Mattel (Nasdaq:MAT) had lower net income, though its revenue increased during its first quarter. Strong sales of its Barbie line pushed revenue up, but input costs and legal costs drove income down.

TUTORIAL: Bond & Debt Basics

Barbie Stars Again
Revenue for the famed Barbie brand grew by 14%. Other doll brands in the Mattel line, Disney Princesses, American Girl and Monster High dolls also did well. In other toy categories, Hot Wheels did well while Fisher-Price sales fell after the expiration of Mattel's agreement with Sesame Street. Barbie's performance and the other strong sellers weren't enough to overcome the downward factors on Mattel's profits.

Bratz Spoils the Party
Mattel's lawsuit with MGA over the Bratz doll line cost it $18.2 million during the quarter. Later in the day, the earnings report came out, a judge threw out Mattel's ancillary lawsuit claiming MGA fraudulently transferred funds to prevent having to pay anticipated judgments. The original suit by Mattel against Bratz saw a verdict which awarded Mattel $100 million, but that verdict was overturned and currently jurors are deliberating in a retrial. MGA has counter sued also. Confused? There are a lot of tabloid-TV type details; suffice it to say, legal handicapping is even more tenuous than stock picking, but a good guess is that eventually Mattel is the favorite to recoup something.

Input Costs Spoil Profits
The rising costs of commodities served to push up input costs for Mattel. Mattel raised prices on April 1, 2011, with an increase in the high-single-digit percentage range. So although Mattel's revenue rose to $951.9 million from $880.1 million in last year's same first quarter, with the higher costs, net income this time around fell to $16.6 million, or 5 cents per share, from $24.8 million, or 7 cents per share.

The playland for toy companies has been a bruising one. The recession was harder on toy companies than any recession in recent memory. Competition remains rough, and a hit or a miss on a toy line can still mean a lot. Rival Hasbro (Nasdaq:HAS) recently turned in a poor quarter, plagued by costs and inventory increases. But the companies continue to battle away. Hasbro picked up the deal with Sesame Street that had expired for Mattel. Hasbro also continues to build its Hub network, still in its infancy, with Discovery Communications (Nasdaq:DISCA).

The big push by both Hasbro and Mattel will be with tie-in toys for upcoming movies. While Hasbro has deals for Thor and Captain America movies, Mattel has deals for Cars 2 and Green Lantern. These huge film product tie-ins are part of the scale for Mattel and Hasbro, while the smaller industry players such as Jakks Pacific (Nasdaq:JAKK), Leapfrog Enterprises (NYSE:LF) or RC2 (Nasdaq:RCRC) have to be even more innovative and original in order to keep their niches strong.

The Bottom Line
The first quarter is a prelim in the toy bouts. The real action will take place during the summer and beyond, with the movie deals and Christmas. Mattel looks to be momentarily ahead of Hasbro right now, but that could change quickly. (Financial discipline is the key to successful growth in the retail industry. Check out The 4 R's Of Investing In Retail.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center