Barbie’s tough world
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In recruiting Margo Georgiadis from Google earlier this year, Mattel signalled the beginning of a chrysalis, of sorts, from a toy maker to a “kid experience” company. As with all change, the process has been slow and it’s been ugly. Shares of the 72-year-old maker of Barbie dolls last week plummeted to levels last seen in the 2008 financial crisis.
The market didn’t like Mattel’s earnings report. And it didn’t like the fact that Mattel suspended its quarterly dividend, or the warning that it would miss revenue forecasts.
At least four brokerages cut their price targets for Mattel. The average price target is US$18, by the way — some distance above its current $14.
But step back, and the picture at Mattel looks like this: sales have fallen in four of the past six quarters.
Worse — the pressure seems to be across brands (it also owns Fisherprice and Hot Wheels) and geographies. A holistic kind of problem, then, and one not unique to Mattel.
Toys“r”us filed for bankruptcy in the US last month, and rivals such as Hasbro (they make Monopoly, Scrabble and Play-doh) and Lego are facing similar existential crises as they try, beyond one-hit wonders, to find the balance between Internet-connected toys, gaming and traditional play.
They know this is where the market is going, and don’t want to be left behind. No-one wants to be Kodak.
The days of being resistant to change and underestimating the threat It’s worth mentioning that the bankruptcy of Toys“r”us has made the recovery of all toy groups a slower burn. Toys“r”us was Mattel and Hasbro’s second-largest customer after Walmart. Toys“r”us’s chapter 11 bankruptcy application was aimed at relieving the ailing chain of its debt load (close to $5bn) from its 2005 leveraged buyout by Bain Capital Partners, KKR and Vornado Realty Trust.
For now at least, it seems Mattel is doing the right things.
In a research note, UBS’S Arpine Kocharyan said Mattel’s hiring of Joseph Euteneuer as CFO in October was “telling of perhaps a more aggressive clean-up approach”. UBS said Mattel’s steps to boosting its financial flexibility “was the medicine many were waiting for”.
Mattel has a fascinating history. It was founded by Elliot Handler and his wife Ruth in 1945. Elliot, an art student, began selling costume jewellery, dollhouse furniture and music boxes (made in his garage) at toy fairs. Ruth, who was credited with inventing the Barbie doll, was indicted in 1978 on charges of fraud and false reporting to the US Securities Commission. She was fined and sentenced to community service.
In her later years, she manufactured artificial breasts for mastectomy patients (she was a breast-cancer survivor). The Handlers were eventually forced out of Mattel, though their legacy lives on: Barbie was named after their daughter Barbara and Ken after their son Kenneth.