Harry Potter is going to send this stock off on a rocket ship. Adults are going to collect these toys and they will fly off the shelves and wind up on eBay for 10X it's fair value...could happen..we shall see!
Business & Technology 3/5/01
Meet corporate turnaround Barbie
Mattel's new boss goes back to the basics
By Katherine Hobson
(Jeffery MacMillan for USN&WR)
Barbie will get a new look to star in The Nutcracker
Tell Tchaikovsky the news: Barbie will star in a full length video of The Nutcracker this fall. The traditional tale has been revamped to include new characters, less ballet and a focus on female heroines, but–of course!–retains a happy ending, complete with Ken. That's the word, anyway, from this month's American International Toy Fair.
Meanwhile, over at Mattel–the company that makes Barbie–it may be too soon to promise a happy ending, but the new boss is enjoying a strong opening act. Robert Eckert, a Kraft Foods exec who fixed ailing brands like Oscar Mayer, took over from glamorous CEO Jill Barad, whose master marketing of Barbie had landed her the top job. But Barad, whose tenure was marked by missteps and missed earnings targets, quit under pressure last year.
Enter Eckert, who is taking a back-to-basics approach to turn the company around: He's getting a handle on out-of-control costs, building business around perennially popular brands like Barbie, and keeping a lookout for that next must-have toy. So far, the reviews are good: In a gloomy market, Mattel stock just hit a 52-week high.
Mr. Fix-it. Eckert's first project was to undo Barad's blunder, the $3.5 billion acquisition of educational software maker the Learning Co., which began hemorrhaging cash from the outset. In the end, Eckert simply jettisoned it; Mattel got no cash up front, settling instead for a portion of its future profits. He then laid out a restructuring plan that included cost cuts and an end to unprofitable product licenses. It all set a far more financially conservative tone. "He brings a level of discipline and procedure to the organization that hasn't been seen in a long time," says John Taylor, an analyst with Arcadia Investment Corp.
Cleaning fiscal house let Mattel focus on what has always been its strength: a toy box full of brands like Barbie, Hot Wheels, and the whole line of popular Fisher-Price baby toys. Together, the lineup raked in $4.7 billion in sales last year. Eckert's new strategy will bring even more attention to his superbrands. Step 1: Boost sales abroad, especially in markets such as Europe and Latin America. By year's end, Mattel had achieved increases in international sales for two straight quarters, something it had not managed for nearly two years.
Step 2: Eckert wants to wrap his famous toys' arms around more products. At the Toy Fair, for example, Mattel unveiled new versions of its blond chameleon. There's rock diva Jam n' Glam Barbie, trying to tempt a somewhat older crowd. There's also Barbie celebrating quinceañera, the Hispanic "sweet 15" rite of passage, collectible Barbies for adult fans, and a new range of plush toys.
Barbie can't do it all, though. Eckert knows that the toy industry is what financial analysts politely call "mature," or slow to grow. So companies have to hope for fads–the Tickle Me Elmos of the world–that transform sane parents into violent scavengers, determined to put this year's model under their Christmas tree.
So Mattel's in the market for new ideas. It's a little early to bet that the company's What's Her Face dolls–which let kids design the doll's face and hair–will ever rival Elmo, but Mattel hopes so. Other new products include licenses to hot entertainment properties, such as the PBS educational show Between the Lions and the much-anticipated Harry Potter movie. After the Learning Co. debacle, Mattel hasn't abandoned interactive toys, but it's now licensing its brands to technology partners to avoid bearing so much financial risk.
One helpful sign, which isn't Eckert's doing, is the turnaround among the retailers that sell Mattel's toys. Toys "R" Us, the second-biggest toy seller after Wal-Mart, is on the mend these days, thanks to its new CEO, John Eyler. Better management on both sides means "there's been a huge improvement in industry relations," says Kevin Grant, a portfolio manager and analyst at Harris Associates, a shareholder in both companies.
So how's Mattel performing? It beat analysts' earnings expectations in the last quarter. Sales were up 2 percent for the year, which isn't bad considering overall industry sales fell 1.4 percent because there were no white-hot toys and consumers weren't spending, among other things. Despite Mattel's decent holiday performance, Eckert has been careful not to overpromise to investors. Industry analysts look for the company to boost sales modestly over the next three to five years. Earnings should grow by 10 percent to 15 percent over the same period. That's a stronger performance than the rest of the toy industry is expected to deliver.
Sure, it's a long way until Christmas, when kids will judge this year's Toy Fair offerings. But the company's recent strong sales performance bodes well for the rest of the year, says Melissa Williams, analyst with Gerard Klauer Mattison. So it could be good news for Mattel investors if Eckert and Barbie live happily ever after. But Ken may have reason to worry. |
