Third-quarter sales at Fisher-Price were down 15 percent, driven by the poor performance of its Thomas & Friends line, as well as its infant products, parent company Mattel reported.
The disappointing results for the East Aurora toy maker were part of a gloomy earnings call outlined Thursday night by Mattel in which an executive also warned of the potential for a "global reduction in headcount" across the company.
Hurt by Toys R Us' bankruptcy filing, of one of its biggest customers, Mattel reported a 13 percent decline in global sales and has suspended quarterly dividends.
"Our performance was clearly disappointing," Mattel CEO Margo Georgiadia said during a conference call with investors.
Mattel took a beating this quarter, posting a 22 percent decline in North American sales. It reported earnings of 9 cents per share, far below the 57 cents per share that analysts were expecting. The company attributed half of that decline to Toys R Us' woes, as well as to tighter inventory management among retailers and challenges among its product mix and among certain brands such as American Girl and Monster High.
"We believe this was somewhat of a unique quarter and we do not believe it reflects the underlying health and growth potential," Georgiadis said.
Mattel said its core Fisher-Price business is consistently growing in the single digits globally, especially in China where one of the largest populations of new babies is being born, and which is one of Fisher-Price's biggest markets.
Among much talk of "rightsizing," "streamlining" and "corporate bloat" during the conference call, Mattel Chief Financial Officer Joseph J. Euteneuer mentioned a "global reduction in headcount" that would mean less use of consultants and temporary labor, and a reduction in its layers of leadership. He also said Mattel would look for places to streamline marketing and manufacturing costs.
Its transformation strategy involves scaling back its number of different kinds of products, shoring up online sales, modernizing its IT demand planning and forecasting under new Chief Technology Officer Sven Gerjets, focusing on growth in emerging markets, pumping up digital content and investing its innovation dollars on projects that are most likely to be successful, such as vehicle play, gaming, and the STEAM categories of science, technology, engineering, art and math.
Starting in the fourth quarter, the company said it will suspend dividends, allowing the company to redirect $50 million per quarter to finance a turnaround plan helmed by a stable of new executives. The company has also vowed to cut $650 million in costs over the next two years to support the turnaround plan.
Fisher-Price, which employs more than 700 people, is a wholly owned subsidiary of Mattel. Fisher-Price declined to comment, deferring to the Mattel earnings call.