Thursday April 15, 7:37 pm Eastern Time

Toy joy for Hasbro, Mattel has trouble in Toyland

(Updates with latest stock prices and analyst comments grafs 5-7 and 13)

By Steve James

NEW YORK , April 15 (Reuters) - In the latest round of the toy wars, Furby and the Teletubbies beat up Barbie and her friend Tickle Me Elmo.

The world's No. 2 toymaker, Hasbro Inc. (NYSE:HAS - news), reported a whopping 75 percent increase in first-quarter profits Thursday, while its even bigger rival Mattel was announcing a net loss of $17.9 million and over 3,000 job cuts.

Yet on Wall Street, stocks of both companies were up in afternoon trading Thursday.

Naturally, traders were confident Hasbro's fortunes would improve even more in the second quarter, since the Rhode Island-based company owns the rights to action figures and other products tied in with the highly-anticipated first episode of the new ``Star Wars'' movie trilogy. In addition, speaking Furby dolls will be released in five languages and Hasbro said it should start to see cost savings from its global integration plan.

Hasbro, which also markets Playskool toys and dolls from the successful pre-school TV show ``Teletubbies,'' saw its shares rise $2.31 to $32.37, well above the prior 52-week high of $30.81.

Yet Mattel was also up over $2 at $28.61. ``Wall Street really likes what it heard (from Mattel),'' said analyst David Leibowitz of Burnham Securities. "The restructuring was not all that surprising and there are other efficiencies that are within reach.

``Every 40-year-old Barbie should perform so well!'' he told Reuters, noting that investors were particularly happy to hear of Mattel's plans to spend $50 million on a new Internet initiative, which is expected to result in the creation of a new subsidiary later this year, a portion of which may be offered to the public.

Hasbro's sales to Toys R Us Inc. (NYSE:TOY - news) stores rose almost 30 percent in the first quarter, excluding sales from its lucrative Tiger Electronics acquisition, the company said in a conference call. Tiger makes the interactive Furby pets, which were the most sought-after toy last Christmas, just as Mattel's Tickle Me Elmo was the Christmas before.

``The inventory changes Toys R Us began implementing last year had the greatest impact on our first quarter,'' John O'Neill, Hasbro Chief Financial Officer, told investors.

The company posted first-quarter net income of $13.8 million or 7 cents a share, adjusted for a recent three-for-two stock split, compared with $7.8 million or 4 cents a share in 1998. Analysts had pegged Hasbro's earnings at 5 cents per diluted share, according to research firm First Call Corp.

Hasbro had first-quarter worldwide revenues of $688.4 million, up 38 percent from $482.8 million in 1998. Revenues were driven by Tiger Electronics, which was acquired in April 1998, and by higher sales of computer-based games from Hasbro Interactive, the company said.

``During the first quarter, normally a slow season, an average of 250,000 talking Furbys were sold each week,'' Chief Executive Officer Alan Hassenfeld said in the conference call. ``Demand is so strong that some retailers are air-freighting Furby.''

Analyst Leibowitz noted the significance to Hasbro of the Star Wars rights, which he said the company has stated to be worth some $500 million in sales this year. Leibowitz said thatamount could be ``meaningfully understated.''

By contrast, the first-quater results were ``trouble in toyland'' for Mattel, despite the fact that its worldwide shipments of all dolls, including Barbie, were up 26 percent.

Los Angeles-based Mattel, the world's biggest toymaker, whose products also include Hot Wheels, reported a first-quarter net loss equivalent to 7 cents per share -- better than estimates by Wall Street analysts, who had expected an 8-cent loss. However, that compared with net income of $12.7 million, or 4 cents per share, in last year's quarter, when Tickle Me Elmo reigned.

Net sales for the quarter were $692.1 million, down 2 percent from $705.2 million in 1998.

As part of its drive to reduce overhead and advertising spending and realign operations, Chairman and Chief Executive Officer Jill Barad said some facilities would be closed and there would be a reduction of over 3,000 positions. She gave no further details.

The merger of Mattel and Learning Co. Inc. (NYSE:TLC - news) , which the companies expect to complete next month, should also result in additional cost savings, she said.

Barad said Mattel expects to incur a pre-tax charge of approximately $300 million to $350 million, to be taken in the 1999 second quarter. She said the company expected to save approximately $50 million in 1999 and at least $400 million over the following three years.


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