Even in preschool, I was popular with the ladies. I remember hanging out with my preschool posse, chilling with our building blocks and our sippy cups, checking out the girls in class. Even then, I was quite a LEGO man.
Yeah, LEGOs were always cool. You could build just about anything with those multicolored plastic bump blocks. While lopsided buildings and castles were the primary result of my construction efforts, today's kids can create the Millennium Falcon from Star Wars or a Ferrari F1 racecar. The castles today are a little more structured and polished -- kids can recreate Hogwarts from Time Warner's (NYSE:TWX) Harry Potter movies -- and licensing is the norm. Other licensed brands include Disney (NYSE:DIS) and Spider-Man from Marvel (NYSE:MVL). Kids can even visit a LEGOLand Park in four countries!
The toymaker was founded in 1932 -- its name is derived from the Danish leg godt, meaning "play well;" fortuitously, in Latin it also means "put together" -- and is the world's fourth-largest toy company behind Mattel (NYSE:MAT), Hasbro (NYSE:HAS), and Bandai (OTC BB: BNDCY). The property ranks third in sales to boys aged 6-11, behind only Mattel's Yu-Gi-Oh! and Hasbro's Beyblade phenomenon. Yeah, LEGOs are still cool.
But cool hasn't been translating into sales lately -- down 26% in 2003 to $1.4 billion -- and that's led to charges of price-fixing that have already ensnared French supermarket giant Carrefour (OTC BB: CRERF). French authorities are investigating the shadowy world of the toy industry there, and if wrongdoing is found, it could lead to maximum fines of 10% of group revenues. In an ominous sign, LEGO replaced its French management team and has acknowledged that "internal guidelines were violated" during the period being reviewed.
Both LEGO and Carrefour have been under pressure recently. LEGO suffered its worst one-year loss ever last year ($177 million) and Carrefour investors, after receiving generally favorable first-half results, are bracing for profit warnings and loss of market share when it reports third-quarter earnings tomorrow. While toys make up a small percentage of the latter's $97 billion in annual sales, LEGO has been ailing under a general toy market slump, with U.S. toy sales declining 3% to $20.7 billion last year.
The company has also been hard-pressed to keep up with Hasbro's K'Nex rod and connector system, the No. 1 construction toy in the non-brick segment. Hasbro has a strong stable of brands that includes Monopoly, Scrabble, Playskool, and Play-Doh, and is one of the reasons that David Gardner recommended the company for Motley Fool Stock Advisor.
Faced with a tough toy market, lower sales, the possible loss of a major distributor in Toys "R" Us (NYSE:TOY), and an investigation into possible price-fixing, I might still be a LEGO man, but K'Nexing with the ladies just might be the more viable option these days.
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Fool contributor Rich Duprey now drinks Coors Light from a sippy cup. He owns shares in Mattel but does not own any other stocks mentioned in this article.
