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Barbie is Back… And She’s Going Global
by Tony Daltorio, Investment U Research
Wednesday, February 3, 2010
In 1959, Barbie Millicent Roberts made a name for herself at the New York toy fair and five decades later, she’s still around; though she goes by just Barbie these days.
It’s a name that Mattel (Nasdaq: MAT), the world’s largest toy maker, quickly turned into a global icon. And while the Barbie brand struggled over the last ten years, it made an obvious turn around as evidenced by the larger company’s latest earnings statement, which showed that fourth-quarter profits nearly doubled from the same time in 2008.
U.S. sales for the doll and her numerous accessories rose 9% during the last quarter, the first rise in nearly two years. Likewise, Barbie did well internationally; even excluding the positive impact of the weak U.S. dollar, they rose by 5%.
CEO Bob Eckert summed it up simply by saying: “Barbie is back.” And with strong sales of its sister products, it seems reasonable to say the same about Mattel.
Barbie’s Middle-Age Makeover
The last decade introduced plenty of competition for Barbie, in part due to societal changes and how young girls interact with each other. But the company invested heavily in revitalizing the brand, including intense marketing for the doll’s 50th anniversary last year.
The company’s revitalization plan made Barbie dolls more relevant for today’s girls and its marketing campaign worked beautifully. For instance, Mattel’s Barbie Fashonista line became one of the season’s hottest toys, and retailers had similar difficulty keeping the doll’s three-story townhouse – despite its $200 price tag – and $80 camper van in stock due to high demand.
And Barbie got a little help from her legal team as well. One of her edgier and most fierce competitors, Bratz, disappeared from shelves altogether after Mattel won a court battle for the brand’s design rights from MGA Entertainment. Of course, when Mattel prepared a line of its own Bratz dolls for 2010, the other company did succeed in putting at least a temporary stop to that line. But the legal battle hasn’t ended yet and the outcome could end favorably for Mattel.
Barbie Goes East
The Bratz battle will probably stretch on throughout at least this year, but Mattel is pursuing other paths to profit all the same, especially in Asia with major marketing campaigns in China. It plans to take similarly strong action in India, which it believes has the same potential in the long run, despite infrastructure problems it needs to deal with in the short term.
While it waits for India to play catch-up though, Mattel opened its first House of Barbie in Shanghai last year, complete with six stories, play areas and workshops where kids and their parents can design their own Barbie dolls. In addition, it also targeted young, Chinese women with clothing lines from Patricia Fields and Vera Wang, Barbie brand cosmetics, a spa and even a bar that serves grown-up drinks.
Admittedly, the House of Barbie’s adult side hasn’t done as well, since Mattel didn’t do its homework on local consumer tastes and subsequently chose styles that didn’t work for the area. But the rest of the business has a lot of potential, considering that China’s fragmented toy market currently amounts to about $2 billion annually. Mattel could capture as much as $300 million of that if it does its due research this time.
With its line of Chinese Barbie dolls – priced at $6 and up – the company hopes to tap a generation of only children, the product of China’s one-child policy. And those boys and girls are fast becoming big spenders in large part due to their doting parents and relatives.
Jean-Christophe Pean, Mattel’s Asia-Pacific general manager, calls China “a double-digit growth market, certainly for us.” The company believes it can turn the country into one of its largest five international markets within the next few years and is only waiting on the growing middle class to progress to the next level, allowing Mattel to follow suit.
Mattel Is Playing This One Right
Mattel shares have risen by about 30% since July 2009, when it began to outpace the S&P 500. And its recent performance should help keep it ahead of its smaller rival Hasbro (NYSE: HAS), whose stock still managed to perform largely better over the last decade.
But Hasbro has fewer movie themed tie-ins to call on this year, and its boy division – which contributes about a third of its sales – may struggle to match the strong performance it showed in recent years. For example, as Avatar’s popularity grows, Mattel’s blue-skinned Na’avi action figures could start to edge Hasbro’s Transformers out of the toy box.
Also in its favor, is the fact that toys remain relatively resilient in a recession, so Mattel should be able to grow steadily and raise their operating margin to the 15-20% range, pushed along by Asia. Between that favorable future and Mattel’s stock still selling on the cheap at only 12 times prospective earnings, it should perform well for patient investors no matter what surprises the economy may bring.
Good investing,
Tony Daltorio
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2 Responses to “Barbie is Back… And She’s Going Global”
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February 3rd, 2010 at 4:31 pm
Mattel is only going uphill from here on… and few people know that Barbie started the beginning of the history of the action figure.
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February 11th, 2010 at 9:31 am
BOOOOOOOOOOOOOOOOOOO!!!!!!! barbie kicked bratz off the self and now they are no. one by babies!!!!!!!!!!!! teens want more than a white doll with no fashoin taste!!!!!!!! they want bratz back!!!!!!!!!!!!!!!!!!!!!!!!??????????????????
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