American Girl sales up 10% in second quarter

Staff/news services  —  7/22/2008 6:31 am

Mattel reported that sales for its Middleton-based American Girl Brands business unit were up 10 percent in the second quarter compared to a year earlier.

American Girl unit sales totaled $61.1 million, up 10 percent versus last year, driven by strong sales of products tied to the Kit Kittredge movie, and additional sales in the Atlanta and Dallas boutiques which opened in the second half of 2007, Mattel reported Friday.

Mattel said its second-quarter profit fell by nearly half as higher costs offset strong sales of toys related to summer movies like "Kung Fu Panda" and the latest Batman film and the benefit from the weaker dollar. The results still beat Wall Street's expectations.

Mattel, which makes Barbie, Hot Wheels and Fisher-Price toys, said quarterly profit dropped 48 percent to $11.8 million, or 3 cents per share, from $22.8 million, or 6 cents per share, a year ago.

Revenues rose 11 percent to $1.11 billion, including a 15 percent rise in international sales that came mainly from the benefit of a weaker dollar. U.S. sales grew just 3 percent.

Analysts surveyed by Thomson Financial had expected profit of 2 cents per share on revenue of $1.04 billion.

"Although the second quarter, like the first, is relatively small for us, we are pleased to generate some positive top-line momentum and see clean retail inventory levels as we enter the second half," Mattel Chairman and CEO Robert A. Eckert said in a conference call with investors.

Barbie was one weak spot, as global sales fell 6 percent. Entertainment properties fared better, with strong sales of toys related summer movies "Batman: The Dark Knight," "Speed Racer" and "Kung Fu Panda."

Higher costs continued to hamper results, however. Selling, general and administrative expenses increased 16 percent to $347.9 million. About $25 million of the increase came from higher litigation fees related to its copyright infringement lawsuit against MGA Entertainment Inc., which makes Bratz, and product recalls. Commodity and gas prices also kept climbing.

A federal jury in California decided Thursday that Carter Bryant, the designer of MGA's Bratz characters, conceived the idea for the dolls while working for Mattel. The verdict could mean millions of dollars for the Barbie maker when the jury considers possible damages in a separate proceeding, which is scheduled to start next week.

"Mattel has pursued this case as a matter of principle and we are satisfied that the justice system has helped with the wrongdoing that has occurred," Eckert said.

MGA CEO Isaac Larian said he believes the company will "ultimately be successful" during the second phase of the trial.

"This is because it is undisputed that MGA -- not Carter Bryant -- independently created the Bratz dolls," he said in a statement.

In the second half of this year, Mattel expects smaller increases in litigation expenses compared to the first half and lower recall costs -- but higher commodity costs such as oil and resin.

Mattel, based in El Segundo, Calif., raised prices on most product lines by the mid- to high-single digits on June 1 to offset its higher costs, and Eckert said it might raise prices again in the spring.

"We don't like to raise prices, but the fact is costs are increasing and we need to reflect those costs," Eckert said.

The company expects to see more benefit from the June price increases later this year. Another bright spot will likely be the debut around Oct. 14 of the Elmo Live toy, which speaks and moves around.

Mattel had a "solid, clean" quarter, but the results were boosted by "non-evergreen" hot or movie-related properties, said Lehman Brothers analyst Felicia Hendrix, who rates the company "Equal Weight."

"The onus is on Mattel, in our view, to continue the momentum started in this quarter," Hendrix wrote in a note to investors on Friday. "That said, we believe these results are largely positive, with perhaps the exception of Barbie, which continues to be a drag."

Staff/news services  —  7/22/2008 6:31 am