Mattel 2001 Annual Report Download - page 27

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The year 2001 presented substantial obstacles for Mattel. Global economies softened; the September 11th
terrorist attacks eroded US consumer confidence; and as a result, several important US retailers cancelled
holiday reorders as they intensified their focus on inventory management in light of uncertain consumer
spending prospects. The difficult retail environment, combined with increased competitive pressures, resulted in
a weakening in the financial strength of some major US retail industry participants. Kmart, the second largest
US retailer, filed for bankruptcy in January 2002. On March 8, 2002, Kmart announced plans to close 284
stores. This action will likely have a negative impact on Mattel’s US sales growth in 2002.
Net sales from continuing operations for 2001 increased 3% to $4.8 billion, from $4.7 billion in 2000. In
local currency, net sales were up 4% compared to 2000. Net sales within the US declined less than 1% from
2000 and accounted for 69% of consolidated net sales in 2001 compared to 71% in 2000. In 2001, net sales
outside the US increased 11% from 2000. Excluding the unfavorable foreign currency exchange impact,
international net sales increased 13% compared to 2000.
Worldwide gross sales in the Girls category, which includes American Girl, increased 3%, or 4% in local
currency, to $2.2 billion. Domestic sales declined by 4%, while international sales increased by 17%, or 20% in
local currency. The growth in the Girls category was driven by Polly Pocket!, Diva Starz, What’s Her
Face!, American Girland international sales of Barbie. Worldwide Barbiesales decreased 3% in both US
dollars and in local currency. Barbiesales in the US declined 12% in 2001 as compared to the strong growth
recorded last year, when sales increased 9% over 1999. The decline in US Barbiesales was largely due to
lower shipments of Holiday CelebrationBarbiein response to lower demand at retail, lower sales of adult-
targeted collector dolls resulting from a weakening retail climate for higher-priced collectible items, and
continuing inventory management by retailers. International sales for Barbiewere up 12%, or 15% in local
currency, reflecting the benefit of early product availability and stronger alignment of worldwide sales and
marketing plans.
Worldwide gross sales in the Boys-Entertainment category grew 6%, or 7% in local currency, to $1.3
billion. Domestic sales grew by 2%, while international sales increased by 13%, or 16% in local currency. The
worldwide Wheels business increased 1% due to a 9% sales growth in Hot Wheelsproducts, which was
partially offset by declines in the Matchboxand TycoRadio Control brands. The Entertainment business
grew 14%, largely due to the global introduction of Harry Potterproducts. Sales generated by the Harry
Potterbrand more than offset the decline of the Disney entertainment business, which will be completely
phased out in 2002. In second quarter 2001, Mattel expanded its games business through the acquisition of
PictionaryInc. (‘‘Pictionary’’), worldwide owner of the Pictionarygame brand and associated rights.
Beginning in January 2002, Mattel will manufacture, market and distribute Pictionaryto international markets.
In the US and Canada, Mattel is the licensor of the property through an independent contractor.
Worldwide sales in the Infant & Preschool category were $1.6 billion, down 1% both in US dollars and in
local currency. Domestic sales were flat, while international sales decreased 4%, or 3% in local currency.
Growth in sales of core Fisher-Priceand Power Wheelsproducts was offset by a decline in licensed
character brands. In 2001, Mattel executed a worldwide license agreement to sell Barneyproducts, the full
impact of which will be included in 2002 sales of licensed character brands.
Gross profit, as a percentage of net sales, was 47.2% in 2001 compared to 45.0% in 2000. Cost of sales in
2001 includes a $28.2 million charge, largely related to accelerated depreciation resulting from the planned
closure of the Murray, Kentucky manufacturing facility (‘‘North American Strategy’’) and termination of a
licensing agreement as part of the financial realignment plan. Cost of sales in 2000 includes a $78.6 million
charge related to the termination of a variety of licensing agreements and other contractual arrangements and
elimination of product lines that did not deliver an adequate level of profitability. Excluding the financial
realignment plan charges, gross profit, as a percentage of net sales, was up by 110 basis points to 47.8% in
2001 versus 46.7% a year ago. Gross profit was positively impacted by savings realized from the financial
realignment plan and lower product costs achieved through the supply chain initiative, partially offset by the
negative impact of foreign exchange. The supply chain initiative has focused on improving customer service
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