Editor's note: The prior version of this article incorrectly stated that Hasbro is the manufacturer of Bratz dolls. In fact, MGA Entertainment is, although Hasbro is a licensee for some Bratz accessory products (not the dolls themselves). We regret and apologize for this error.
Sibling rivalries can be a lot of fun to watch, but they can also be quite painful. Just ask Barbie, whose "little" sister American Girl is putting up a fight for supremacy as Mattel's (NYSE:MAT) top gal.
Although Barbie will probably never be replaced by another doll, sales of the icon have dwindled over the past few years, leading some to wonder what's going on at Mattel. The reality exists that Barbie is losing shelf space, both at privately held Toys "R" Us and at Wal-Mart (NYSE:WMT), to those famous brats from privately held MGA Entertainment, Bratz dolls. With concerns that Barbie sales will fall short this year, recent downgrades have popped up for Mattel, sending its share price to a new 52-week low. But is Mattel on its way to the island of misfits?
Looking at last quarter's earnings, Mattel actually fared pretty well, reporting a 10% increase in sales. Barbie's other siblings -- Fisher-Price brands, Hot Wheels, and especially the entertainment segment (which includes Batman toys) -- all delivered positive results. And the popularity of her little sis, the American Girl, boosted revenues with a 20% increase in sales. But, Barbie's little pink Corvette was going in reverse; sales were down 4%. In fact, domestic sales for Barbie have fallen from more than $900 million in 2000 to less than $600 million last year.
Is it a good time to buy Motley Fool Inside Value pick Mattel before the upcoming holiday season? Reading the headlines you would have to say no. However, with Mattel's stock trading near 52-week lows and sporting a P/E of only 15, any upside earnings surprise could be beneficial to shareholders. In addition, Mattel's recent share buybacks and healthy dividend yield of 2.7% shows its commitment to return value to investors. But the big question for me is, will Barbie ruin the show?
It's true that Barbie is the flagship product for Mattel (and Ken would have it no other way). But Mattel's other products account for more than half of the company's sales and have significant potential to grow both domestically and internationally. The gaining popularity of American Girl, increased revenues from Hot Wheels and Fisher-Price brands, and continued success of the entertainment segment may have investors jumping on for the ride this coming holiday season.
As for Mattel, it seems to me the kids are getting along just fine; the problem is that some are just growing up faster than others.
More Foolishness on toys:
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Fool contributor M.D. Mitchell is down the street at the local junkyard looking for some good trash. His kids love Mattel products, and he has the credit card statements to prove it. He owns shares in none of the companies mentioned here.
