In spite of strong sales of Batman toys and American Girl dolls, Mattel, the nation’s largest toymaker, reported worse than expected earnings for the 4th quarter of 2008 as profits slid 46% versus the same quarter in 2008.  Analysts are now estimating that toys sales in the U.S. were down 5-6% for the year (final numbers will be out at Toy Fair), but Mattel, where sales for 2008 were down 11% to $1.94 billion, may have suffered more than its competitors.  Sales of the company’s flagship Barbie brand were down 21% worldwide in Q4, an inauspicious lead-in to the shapely doll’s 50th anniversary. The market reacted to Mattel’s report by sending its stock down over 16% in trading on Monday.

Bright spots for Mattel included Batman toys, the American Girl line of upscale dolls, and merchandise based on Disney’s High School Musical.  Mattel CEO and Chairman Bob Eckert told analysts in a conference call that: “Batman was clearly a very good property,” but he also noted that other Mattel Entertainment initiatives did not fare as well, “Kung Fu Panda and Speed Racer were not big toy properties.” 

Evidently the Dark Knight was not enough to stem the tide in Mattel’s Entertainment category where sales were down 17% in Q4.  The Wheels category dropped even faster, taking a 19% hit in Q4, and Mattel’s Fisher Price brands were down 10% for the same period.  The American Girl brands, which rose 5% in Q4, posted the only positive sales growth in the fourth quarter among the categories mentioned during the conference call.

With a light entertainment pipeline for 2009 and a strong dollar depressing international sales, Mattel, which already announced over 8,000 job cuts in November, is working hard to reduce costs.  Eckert promised to cut ad spending in order to make sure it was in line with expected sales, and he put a major emphasis on cutting the number of skus the company produces: “like most businesses, a relatively small portion of our SKUs generate the most sales and profits, and it takes a fair amount of work to make all these underperforming SKUs and we're going to go after it. So we're going to have fewer SKUs in 2009 than we had in 2008 across some really key businesses, like our girls product line, and I think it's going to show up 2009.”

Mattel, which spent $52 million on legal expenses in 2008 relating to product recalls and a suit against rival doll maker MGA (Bratz), may get some legal relief in 2009, but in spite of winning an initial judgment in its suit against MGA, Eckert was not optimistic about getting a settlement, telling analysts: “What MGA says and what it does aren't always consistent. And in this case, despite its public pronouncements regarding its supposed desire to settle our dispute, we've seen no indication of a genuine interest in settlement throughout the case.”