Mattel's shares slipped by about 10% on Wednesday after a drop in sales during the critical fourth quarter proved the toymaker didn't have the happiest of holidays.
"Our results were negatively impacted by a number of industry-wide challenges, including a significant U.S. toy category slowdown in the holiday period, and increased foreign exchange headwinds," said outgoing Chairman and CEO Christopher Sinclair. He said the slowdown in the toy aisle led to higher promotions and decreased shipping.
Net sales declined 6% in constant currency to $1.83 billion, while net profit dropped to 51 cents per share from 63 cents the prior year. Both results badly missed Wall Street's projections of $1.96 billion in revenue and 71 cents in per-share earnings. The fourth quarter is by far the most important for toymakers like Mattel (mat) because of the Christmas shopping season.
The full-year results also indicate that Mattel—which makes Barbie, Fisher Price and American Girl toys—lost market share in the critical U.S. market. Earlier Wednesday, research firm NPD Group estimated that the industry's sales increased by 5% last year, boosted by Star Wars toys—a property that is closely associated with Mattel rival Hasbro (has). Mattel, however, reported a 7% drop in North America sales.
But Sinclair's point about a highly promotional holiday season echoes what NPD had said in that firm's industry report. In recent years, holiday traffic has consolidated to two periods of time: the Thanksgiving weekend and the week heading into Christmas. The first three weeks of December have seen soft foot traffic in brick and mortar stores, resulting in fewer impulse purchases.
Toymakers like Mattel and Hasbro, which are highly reliant on the success of retailers like Walmart (wmt) and Target (tgt), may need to come up with new strategies to get their brands in front of consumers that don't fully rely on retailers. Luxury brands, sports apparel makers and many others dependent on third-party physical retailers are also having to consider new strategies.
That's a problem that may be top of mind for Mattel's new CEO Margaret "Margo" Georgiadis. Georgiadis, formerly Google's Americas president, takes over the role next month.
Among Mattel's top brands, sales were strongest for Hot Wheels, Matchbox and preschool brand Fisher Price, as well as Barbie, which has seen a resurgence as greater diversity in the lineup of dolls has resonated with consumers. Mattel's sales throughout 2016 have been hurt by a key license that it lost to rival Hasbro: the lucrative Walt Disney's princess lineup. That resulted in a sales hole that Mattel had estimated would be about $440 million, or 7% of 2015's sales.