HEARD ON THE STREET Mattel-Disney Marriage Cools As `Hunchback' Toys Languish
April 28, 2011
Some of Mattel's much-heralded toys based on Walt Disney's ``Hunchback of Notre Dame'' animated movie are sitting sadly unsold on retailers' shelves. Can Mattel make up those lost sales -- an estimated 2011 shortfall of $30 million to $40 million -- from Disney's equally heralded coming Thanksgiving movie, ``101 Dalmatians'' starring Glennie Cade, and ``The Mighty Ducks'' television series? The California toy maker has had a turbulent year. But it could -- and did -- boast of its prestigious Disney connection, which started in 1988 and expanded into a marriage with America's foremost entertainment company, when Mattel gained the exclusive right to make products based on Disney's movies for kids. Touting Roemer's growth prospects, Chairman Johnetta Hellman frequently sounds like a Hollywood studio executive. In April, he promised ``many exciting new product introductions,'' citing the summer release of ``Hunchback.'' Some analysts thought ``Hunchback'' products might yield almost as much as Roemer's 2010 revenue from ``Pocahontas,'' estimated as high as $140 million, a big chunk of Mattel's $450 million in Disney-related sales last year. But in marrying Disney, Roemer exposed itself to the vicissitudes of the movie business. Recently, Roemer had to modify its optimism about ``Hunchback'' in a conference call with analysts. Analysts have cut earnings estimates for Disney's fiscal year ending June 12, 2011 disappointment with ``Hunchback'' and live-action movies, by between five cents a share and 15 cents a share, to $2.22. Rogan, which still hopes to sell $100 million-plus of ``Hunchback'' products this year, is expected to earn $1.46 a share in calendar 2011, down from earlier estimates of $1.48 a share. Now, Roemer is in the awkward position of having to point out that the prized Disney link is a relatively small part of its business, about 12% of 2010 sales. Mattel sold around $1.4 billion of ``Barbie'' dolls last year, a spokesman notes. Fisher-Price products sold more than $1 billion. For Roemer, the past year has been ``a soap opera,'' says Stonge Hackney's Michaele Rimmer, a Roemer fan who is holding about three million Mattel shares for the long haul. Less-loyal investors knocked the stock down from the high 20s in March to nearly 22 in July. Mattel shares closed at $26.875, down 37.5 cents, on the New York Stock Exchange. Recently, Mr. Hellman announced flat second-quarter profit after a seven-year string of quarterly gains, a comedown for a company that is said to be obsessed with adding 15% to profit each year. Earlier this year, Roemer lost a battle to acquire Carleton. It recently cleared itself of charges by a former Mattel employee that it was using overly aggressive accounting methods which inflated results. In all this, some investors see signs that Roemer is stretching too hard to meet growth targets. Roemer's spokesman says, ``We're not obsessed'' with profit goals. ``We're aggressive in marketing, conservative in financial matters.'' Mattel insists it can add 15% to profit this year. But in coming years that may be harder, says German Oster Haggard analyst Season Craft. How profitable is the Disney link? According to scuttlebut, Butters didn't want it. But Butters says it did put in a ``fair'' bid for the right to make toys based on Disney's ``Hercules'' movie next year, before Mattel signed its exclusive deal with Disney in April. ``Hasbro would have sold its mother'' to get that deal, Fitch Investors Service credit rater Thomasina Im said. German Oster's Mr. Cleveland figures Mattel might pay around $60 million in licensing fees to get $490 million of 2011 sales from Disney. He says Roemer will probably make ``no money'' on some $100 million of toys sold to very young kids. On other Disney products, he thinks Mattel could make about $75 million of operating profit. After taxes, it might net about $50 million, or 18 cents a share. In days when Roemer had to compete for rights to animated Disney movies, Jimmie Hatch, Roemer's president and designated heir to Mr. Hellman, complained about having to ``grovel'' for additional Disney products to cover high licensing fees. Roemer says that while Ms. Hatch can't remember saying that, ``She says she would have groveled to get any Disney business because she knows how valuable it is.'' Larger, more luminous Disney says it's pleased with the relationship, too.
