Mattel profit up on Barbie, Elmo sales

NEW YORK.- on Monday posted better-than-expected third-quarter profit, boosted by the introduction of its T.M.X. Elmo plush red doll and improving sales of Barbie dolls, and its shares rose more than 5 percent.

The results position the No. 1 U.S. toymaker to enter the fourth-quarter holiday gift-giving season on a positive note.

“True the holiday season has just begun, but so far, it’s a good beginning,” said Mattel’s Chairman and Chief Executive Robert Eckert on a conference call with analysts.

Mattel, known for its Fisher-Price and American Girl brands, reported net income of $239 million, or 62 cents per share, compared with $225.3 million, or 55 cents per share, a year earlier.

The toy company said its third-quarter results include 3 cents per share after tax related to accounting errors for certain stock option grants made prior to 2003.

Analysts on average had expected 61 cents per share, excluding items, according to Reuters Estimates.

Mattel has been trying to boost sales by revamping its management team, improving its Barbie line, and creating marketing buzz around the launch of T.M.X. Elmo, its 10th anniversary Tickle Me Elmo doll.

The company’s Barbie division has introduced new products, like its 12 Dancing Princesses line, to counter fierce competition from MGA Entertainment’s Bratz dolls, which have stolen market share from the iconic doll.

BARBIE SALES RISE

Mattel said its efforts led to signs of “stabilization” in the Barbie brand, with third-quarter worldwide gross Barbie sales increasing 1 percent and U.S. Barbie sales up 4 percent — marking the third consecutive quarter of gains — after declining in 2005.

“I think the pendulum is swinging back toward their favor,” said Gerrick Johnson, an analyst with BMO Capital Markets. “You need stabilization first before you can have growth.”

Mattel’s quarterly sales rose 7 percent to $1.79 billion, beating analysts’ targets of $1.73 billion. Third-quarter worldwide gross sales in the Fisher-Price division rose 9 percent to $790.5 million.

Fisher-Price unveiled the T.M.X. Elmo doll on September 19 to much fanfare after keeping the features a secret for months. The new Elmo, which slaps its knee and falls over in a fit of laughter after being tickled, has been flying off store shelves since it was introduced.

While the toy is Fisher-Price’s top-selling item of the year, Mattel has faced criticism that it did not produce enough Elmos to meet the demand that it generated with the launch.

“Nobody anticipated the first day response that we had on this toy,” Eckert said. “Certainly since I’ve been here, there’s never been a one-day sell through of a toy like this let alone this happening in September, not the day after Thanksgiving.”

Mattel will continue to make and ship the doll throughout the holiday season to try to meet demand, he said.

Third-quarter gross sales for the American Girl business were $71.2 million, up 3 percent.

REVIEW OF STOCK OPTIONS

Separately, the El Segundo, California-based company said it completed a review of its stock option practices.

The review found that there had been no backdating of stock option grants, but Mattel identified “administrative procedural deficiencies” that resulted in incorrect accounting measurement dates for certain grants.

Mattel said the errors caused non-cash compensation expense to be understated by $19 million from 1995 through 2005.

Numerous U.S. public companies have in recent months disclosed criminal, regulatory or internal probes into issues such as potential manipulation of dates by which option grants were recorded. Stock options let holders buy shares in the future at fixed prices.

Mattel shares have risen almost 31 percent this year through Friday, while shares of rival Hasbro Inc. (NYSE:HAS – news) have gained almost 15 percent.

Mattel stock was up $1.08 per share at $21.78 in early Monday trading on the New York Stock Exchange.