Toymaker Mattel plunges after slump deepens, leaving new CEO scrambling


New chief executive officer Margo Georgiadis vowed to increase the company's cost-cutting plan threefold and suspend Mattel's dividend.
New chief executive officer Margo Georgiadis vowed to increase the company's cost-cutting plan threefold and suspend Mattel's dividend. PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Mattel shares tumbled as much as 28 per cent on Thursday (Oct 26) after a surprisingly sharp sales decline, leaving new chief executive officer Margo Georgiadis racing to overhaul the maker of Barbie and Fisher-Price.

In the wake of the dismal results, which included a deeper net loss, Georgiadis vowed to increase the company's cost-cutting plan threefold and suspend Mattel's dividend. The payout to shareholders had already been slashed by about 60 per cent earlier this year.

The bankruptcy of Toys "R" Us Inc. torpedoed sales, especially in North America. And the company is still reeling from the loss of its Disney Princess franchise to Hasbro in recent years. Barbie, Mattel's biggest product, also has been attempting a comeback - with uneven results.

"We're completely reinventing Mattel and making the tough decisions necessary to jump-start growth and profitability," Georgiadis said in an interview. "2017, in my view, is a reset year for Mattel. We will start to see the benefits of the transformation into 2018."

Georgiadis, who joined the company in February, plans to reduce expenses by US$650 million over the next two years - up from a US$200 million projection in June. Not paying a dividend in the fourth quarter will also free up US$50 million.

The extra cash will come in handy after sales declined 13 per cent to US$1.56 billion last quarter. Analysts projected revenue of US$1.8 billion. North America was especially hard hit, with sales there falling 22 percent. Half of that decline came from the disruption caused by Toys 'R' Us' Chapter 11 filing in September, Georgiadis said.

Profit was 9 cents, excluding some items, trailing a forecast of 57 cents by analysts. The company had a net loss of US$1.75 a share, including a charge of US$561.9 million from a valuation allowance on deferred tax assets. Meanwhile, revenue overseas rose 1.4 per cent to US$675.2 million.

The revenue declines were widespread, with Barbie falling 6 per cent and Hot Wheels 4 per cent. Fisher-Price dropped 15 per cent, and American Girl tumbled 30 per cent.

After a temporary halt in trading, Mattel shares fell as low as US$11.10. The stock had already declined 44 per cent this year through Thursday's close.

The company's woes have stretched out over three years, as the loss of the main Disney Princess and Frozen licenses - coupled with the decline of once strong brands like Monster High - have bludgeoned the stock's value. The world's largest toymaker brought in Georgiadis, a former Google executive, to accelerate the company's plans. She has so far revamped the management team, including a new chief financial officer - Joe Euteneuer, who joined from Sprint Communications Inc.

Georgiadis has said Mattel's products need to adapt to the way kids are now being raised, citing toddlers on iPads and education-obsessed parents. This will lead to a big push in digital content, internet-connected toys and products that promote learning, she said. She also wants to expand into gaming, live experiences and other categories of products.

The cost-cutting is focused on simplifying the company - Mattel will reduce the number of products it makes by 40 per cent, Georgiadis said. When Mattel lost Disney, it tried to fill the revenue hole of about US$500 million by launching new brands. Many of them didn't pan out, and will be discontinued. That will allow it to spend more on building its core brands like Barbie, Hot Wheels, American Girl and Fisher-Price, she said.

Georgiadis reiterated that the long-term goal is to still reach mid- to high-single-digit sales growth and an operating profit margin of 15 per cent.

"Now we'll have the resources we need to free up to invest," Georgiadis said. "I'm excited about the progress we're making, despite some of the challenges in the quarter."