The world's biggest toy makers posted contrasting quarterly results on Monday, with Hasbro Inc. reporting strong profit, while rising costs and legal expenses left Mattel Inc's with a first quarter loss.
Mattel, the world's largest retailer and maker of iconic toy brands such as Barbie, American Girl dolls, Hot Wheels and Elmo, said that the company will raise prices by mid-single digits by June. Hasbro has predicted price increases as well.
The price hikes are necessary in order to offset Mattel's first-quarter loss, CEO Robert Eckert said to analysts during a Monday conference call where he discussed the company's quarterly results.
Mattel reported a loss of 13 cents a share for the period, falling far short of Wall Street expectations for a profit of a penny a share on a 2 percent drop in sales. The stock dropped more than 7.5 percent on the New York Stock Exchange during morning trading, and closed 8.2 percent lower at $20.
The first-quarter is usually a slower period for toy makers as demand for toys drops after the holiday shopping season, when the bulk of the year's sales are made.
Eckert blamed the loss partly on rising costs of raw materials such as resin used to manufacturer plastic toys along with a soaring labor costs in China where a majority of Mattel's products are made.
He also noted that the stronger Yuan is making it more expensive for Mattel to import toys into the United States, along with rising law suit expenses related to the recall of millions of Mattel toys in 2007 for lead paint hazard and design flaws.
Hasbro posted revenue of $704.2 million, a 13 percent increase from $625.3 million a year ago, though without the foreign currency appreciation factor, it would've been only a 9 percent increase. Results surpassed Wall Street expectations of revenue of $583 million.
Hasbro Chief Executive Al Verecchia, who is set to retire next month, said on a conference call that strong sales from popular brands surpassed low seasonal expectations.
Even though this is only the first quarter, we are very pleased with our performance thus far, he said.
We had a strong 2007 and the momentum continues into 2008 with a number of brands doing very well including Transformers, Star Wars, Littlest Pet Shop, Playskool, Baby Alive, My Little Pony, as well as a number of our board games.
Both companies have said they expect their 2008 results to be challenged as each absorbs the higher cost of doing business in China, where most toys sold in the U.S. are made.