Mattel to dismiss 3,000, close plants to cut costs

Market hails cutbacks with rise of nearly 9% in toymaker's shares

April 16, 1999|By BLOOMBERG NEWS

LOS ANGELES -- Mattel Inc. said yesterday that it will shut plants and fire more than 3,000 workers, or a 10th of its work force, as Chairman Jill Barad seeks to cut costs and revive profit at the world's largest toymaker.

The maker of Barbie dolls, Hot Wheels cars and Fisher-Price toys also reported a $17.9 million first-quarter loss on a 1.9 percent drop in sales, and said it'll spend $50 million to create an Internet unit that it may take public.

Mattel's results have been hurt five straight quarters as retailers slashed orders, costs ballooned and kids turned more to computer programs and electronic games.

Mattel shares rose $2.3125, nearly 9 percent, to $28.25 in trading on the New York Stock Exchange.

Mattel didn't say where the plants to be closed are located. The cuts will begin this quarter, said spokesman Glenn Bozarth.

The job cuts, which will save $50 million in 1999 and $400 million the next three years, are part of a restructuring that led to the exit of two executives last month.

"Barad is moving to make Mattel a broader-based entertainment company," said Chris Byrne, editor of the Toy Report newsletter. "That makes a lot of sense as kids spend less of their childhood with traditional toys."

Mattel shares have dropped about 27 percent the past year, lagging the 18 percent rise in the Standard & Poor's 500, as Toys "R" Us Inc. and other retailers reduced orders. The shares lost half their value in November and December alone.

The company will take a pretax charge of $300 million to $350 million against second-quarter earnings for the restructuring and proposed $3.8 billion purchase of Learning Co., the maker of children's software such as "Reader Rabbit" and "Where in the World is Carmen Sandiego?"

Los Angeles company also didn't say how big a stake in its Internet unit it might sell or when. The unit will help sell more goods directly to the public, as Barad seeks to reduce Mattel's reliance on sales through retailers.

Mattel has said it would look for ways to reduce costs. It was due for a major cost-cutting effort after so many acquisitions, particularly in preschool toys, Byrne said.

"They had a lot of overlap," he said, noting that the preschool units under the Fisher-Price, Tyco and Disney brands all have separate operating staffs.

Mattel's cost of sales equaled about 54 percent of revenue in the quarter, more than the 38 percent for rival Hasbro Inc., which has been cutting costs the past year in a restructuring that includes plant closings.

Two top Mattel executives resigned last month as Barad eliminated layers of management so that division heads would report directly to Barad, part of her effort to make the company more entrepreneurial.

"I do not expect any more management changes," Barad said during a conference call. "The team is in place."

Mattel had a first-quarter loss of $17.9 million, or 7 cents a share, compared with net income of $12.7 million, or 4 cents, a year earlier. A loss of 8 cents was expected by analysts surveyed by First Call Corp.

Revenue fell to $692.1 million from 705.2 million.

Pub Date: 4/16/99

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