Mattel's Barbie Blues

Are toys in time-out? Today, Mattel (NYSE:MAT) echoed Hasbro (NYSE:HAS) in reporting earnings that were a bit of a bummer. In addition, the prognosis may not be too good for the upcoming holiday season.

Mattel, a Motley Fool Inside Value pick, reported net profit down 5.2% at $255.9 million, or $0.61 per share, with net revenues down 2% at $1.67 billion. The company's important Barbie brand's sales fell by 13%. Another important and well-known product line, Hot Wheels, suffered a 3% decrease in sales. There were better fortunes for Mattel's Fisher-Price and American Girl brands, with sales that increased 7% and 9%, respectively.

"As consumers respond to economic uncertainty, many retailers have been reluctant to take inventory risk for the holiday season," the company said in its press announcement. In its conference call, Mattel management blamed high oil prices and retailers' concerns about how shoppers will react to economic concerns this coming holiday season, implying that retailers are reluctant to stock too much toy inventory what with the questionable consumer outlook.

Of course, there are also fewer toy retailers in the space this year. Although it recently became apparent that the new king of toys, Wal-Mart (NYSE:WMT), won't be such an aggressive price-cutter this year (for more on this issue, click here), this year FAO Schwarz is a non-entity, and KB Toys is crippled. Toys "R" Us (NYSE:TOY) is still kicking, though it recently let investors know about the possibility that it might simply get out of toy sales altogether.

Even though Mattel isn't alone in these woes, given Hasbro's own worrisome outlook, Mattel faces some challenges of its very own. Barbie's flagging popularity has been well-known for a while now. The Fool's own Bill Mann recently pointed out that Disney's (NYSE:DIS) got magical appeal for little girls through its popular Disney Princesses line.

Mattel plans a strategy for stimulating Barbie sales, such as an advertising campaign featuring popular young actress Hilary Duff and an American Idol line. (I wondered whether these choices might be a little mature to attract the Barbie crowd, but then again, it's hard to ignore Mattel's historical marketing know-how.) In the company's conference call, management said that Barbie market share has stabilized in the U.S.

Any investor can tell that the next several months could be painful because of consumer discomfort and tightening of purse strings, not to mention retailers' own reticence to carry too much inventory, although one might hope that holiday spirit might save the day. However, looking further forward, given Mattel's efforts to reinvigorate the Barbie brand, investors might wonder whether it's all been a fluke, or, after all these years, Barbie's finally getting a little old.

Mattel is a Motley Fool Inside Value stock pick. If you're looking for stocks that fit the value criteria, it may be the service for you.

Alyce Lomax does not own shares of any of the companies mentioned.