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Thomas the Tank Engine’s Sales Go Off Track. What Mattel’s 18% Stock Drop Means for the Economy

Mattel’s stock tumbled 18% Friday, after some worrisome financial guidance derailed its analyst day. The major U.S. toymaker revised down its estimated revenue this year, thanks in part to declining sales of two franchises, Thomas and Friends and American Girl.

During its annual presentation to investors and analysts, Mattel CFO Joe Euteneuer warned that gross sales in 2019 would be flat with 2018 figures, the fifth time in the past six years that Mattel’s revenue has either been flat or down on year. While flat revenue would represent an improvement over the 7% decline in revenue last year, it’s worse than the 4% growth that analysts had been forecasting for 2019.

The disappointment was especially unwelcome given that, last week, Mattel offered a rare glimmer of optimism by posting a surprise profit during the last quarter of 2018. The March 2018 bankruptcy of mega-retailer Toys ‘R’ Us put a drag on the sales of all toymakers. Mattel’s task Friday was to show it had a plan for the post-Toys ‘R’ Us world. It ended up undermining that message.

Euteneuer explained that, while sales of Barbie and Hot Wheels toys would increase this year, those at Thomas and Friends and American Girl would “offset” those gains, declining again in 2019. That raises the question of whether the causes of the slowdown at toymakers like Mattel and Hasbro go beyond the Toys ‘R’ Us bankruptcy—such as the prospect that American families are cutting back spending on items like toys that are normally seen as routine, if not essential (at least to the younger family members).

Last week, the Commerce Department said retail sales fell 1.2% year over year in December, the most important month for most retailers, in what was the sharpest drop in nine years. The National Retail Federation confirmed that holiday sales came in below its own forecasts, thanks to rising consumer “worries.”

There are other signs that family budgets are tightening. Auto sales went into a slump in late 2018 and may be even worse this year. Apple is learning what happens when consumers decide to hang on to their aging iPhones for just one more year.

And now stumpy little Thomas, the fussy but cheeky tank engine whose friends always stood by him, may find that consumers long loyal to his franchise are also rethinking their allegiance. And when families’ toy budgets are cut year after year, it can start to look like the flashing red lights at a railway crossing.