Comprehensive article on Mattel from WSJ Friday issue
April 16, 1999
Mattel Announces Layoffs of 3,000
Ahead of Learning Co. Acquisition
Toymaker's Stock Rises 8.9% on News
Of October Launch of Mattel.com Site
By LISA BANNON
Staff Reporter of THE WALL STREET JOURNAL
EL SEGUNDO, Calif. -- Mattel Inc. said it will lay off 3,000 people, or 10%
of its work force, and take a pretax charge of $300 million to $350 million as
it moves to digest its pending acquisition of Learning Co. and reposition itself
as a diversified family-products company.
Key Dates
February 1997: One month
after Jill Barad takes over as
CEO, Mattel reports flat
earnings and promises to get
out of noncore businesses
March 1997: Company says
it will lay off 2,700 people,
10% of work force, in
restructuring
June 1998: Mattel buys
closely held Pleasant Co.,
maker of American Girls
collection, and simultaneously
warns of lower-than-expected
quarterly earnings
September 1998: Mattel again cuts profit forecast
December 1998: Stock tumbles after Mattel reveals $500 million
sales shortfall; acquisition of Learning Co. announced.
March 1999: Mattel buys Purple Moon software company; Chief
Operating Officer Bruce Stein leaves as part of management
shake-up
April 1999: Mattel reports a loss and announces plans to cut a
further 3,000 jobs
The shift in focus comes amid declining toy sales at Mattel, a factor in the
company's first-quarter loss of seven cents a share, reported Thursday,
which was nonetheless narrower than analysts had expected.
At the same time, Mattel announced an October launch for its long-awaited
Web site, Mattel.com, through which it hopes to sell its well-known toy
brands such as Barbie dolls and Matchbox cars directly to consumers. The
company expects to spend $50 million to launch the Web site, which will be
a separate subsidiary. A portion of the unit may be offered to the public later
this year, said Jill Barad, Mattel's chairman and chief executive.
Mattel stock rose, propelled by news of the Internet venture as well as the
company's estimate that the restructuring will save it $450 million in costs
over four years. Mattel shares closed up $2.3125, or 8.9%, at $28.25 in New
York Stock Exchange composite trading Thursday.
Struggling With Shortfalls
The company, which has struggled with major earnings and sales shortfalls
over the past year, hopes to capitalize on the growing importance of
Internet-commerce as well as from the market for family-oriented
interactive products. Ms. Barad said she expects Mattel.com to result in
sales of $1 billion in the future, and revenue of $60 million this year alone.
She also said the company has developed a soon-to-be-disclosed partnership
model for toy retailers so they can participate in Mattel's site and therefore
won't be threatened by the new online competition.
Mattel has been seeking to remake itself in an
effort to decrease its reliance on the shrinking
toy market and the volatility of toy retailers.
Next week, the company will present its new
strategy to Wall Street analysts, detailing the
online venture as well as the synergies it
expects from its pending $3 billion-plus stock
acquisition of Learning Co.
Getting positive news out is especially important now since the acquisition
price will be determined by the average price at which Mattel stock trades
for 20 days before the closing date, May 13. If Mattel shares trade higher
than $27.50 during the period, Mattel issues less than 1.2 shares for every
Learning Co. share. If the stock gets as high as $32, the transaction
becomes one Mattel share for every one Learning Co. share. Anything
below $27.50 translates to 1.2 Mattel shares for each Learning Co. share.
Online Venture Applauded
Analysts generally applauded the online venture while waiting to see
whether Mattel will be able to continue a perceived recovery of sales in its
core brands.
"It's a challenging time for Mattel. They're transitioning in a transitioning
industry," said Jill Krutick, toy analyst at Solomon Smith Barney. "The first
quarter showed some baby steps. The question remains the sustainability of
that."
Mattel's first-quarter loss of seven cents a share amounted to a total of
$17.9 million, compared with net income of $12.7 million, or four cents a
share, in the year-earlier period. Sales were down 2% to $692 million from
$705 million last year.
Mattel was hit especially hard last year by inventory cutbacks at Toys "R"
Us Inc., which reduced its purchases of Mattel products by some $250
million. Ms. Barad said first-quarter sales to Toys "R" Us were up over last
year although she didn't disclose by how much. She said sales to the big
retailer "are on track" with Mattel's projections.
The company said the quarterly loss stemmed from higher-than-expected
costs as well as interest expenses related to last year's acquisition of
Pleasant Co. Mattel, whose fourth-quarter sales came in $500 million below
its projections, had geared up for considerably more retail sales that never
materialized, hence the higher expenses, Ms. Barad said. Of the
seven-cents-a-share loss, four cents stem from goodwill amortization and
interest costs related to the Pleasant Co. acquisition.
Addressing High Costs
The company's high costs will be addressed by the restructuring, she said,
which will reverse the losses in the second quarter. The layoffs will be
companywide and include plant closures, although Mattel declined to reveal
which facilities will be affected until employees have been notified. As a
result of the restructuring, Mattel expects to realize cost savings of $50
million this year and a total of $400 million for the following three years.
The charges, to be taken in the second quarter, relate to the restructuring as
well as the integration of Learning Co.
The drop in sales was primarily due to a decline in sales of Sesame Street
and Mattel Media products. But Ms. Barad said the company's core brands,
particularly those that showed weakness last year, including Barbie and
Fisher Price, were back on track and positioned for growth.
Barbie sales were up 3% world-wide and are expected to show a 7% to
10% increase for the year, bringing them back to 1997 levels, Ms. Barad
said. Barbie retail sales were down 4% for the quarter, but Ms. Barad
emphasized that the comparison period last year was higher because the
company was selling Barbies at a discount to reduce inventory. She said
Barbie retail sales during the Easter period were up 23% over last year.
Ms. Barad added that the core Fisher-Price business also returned to health,
with sales increasing 9% world-wide.
Regards
Neil |
