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Mattel's Got Fresh Eyes and a Big Mess

Mattel Inc. had better hope this is what rock-bottom looks like.

Wall Street had braced for a grim quarter from the toy titan. After all, the company is still in the early innings of a turnaround effort under new leadership, and the entire industry is feeling the ripple effects of Toys "R" Us's bankruptcy.

And yet Mattel still managed to spook them.

The company behind brands such as Barbie and Fisher-Price on Thursday reported that worldwide net sales sank 13 percent in the latest quarter compared to a year earlier. In North America, sales tumbled 22 percent, with about half of that decline related to the Toys "R" Us bankruptcy.

CEO Margo Georgiadis clearly gets the scope and scale of Mattel's problems: The company said Thursday it would suspend its quarterly dividend and look to cut $650 million in costs over two years.

It's good that Georgiadis has pledged to plow about $170 million of those savings into efforts such as shoring up e-commerce capabilities and building a more-robust business in digitally connected play.

But her challenge is going to be figuring out the optimal way to deploy that money and other resources. Because when you dive into this earnings report, you'll see how hard it is to find any semblance of a bright spot. The performance across all major brands was dismal in the quarter:

And if you study the results by geography, North America was by far the worst; but growth wasn't exactly sizzling in any international markets, either:

Looking at those conditions, it's exceedingly hard to identify where Mattel's turnaround steps have made a difference so far -- or to figure out where it should direct its firepower now.

Georgiadis told investors on a Thursday conference call that she thought this quarter was affected by a "unique" brew of problems that don't reflect the underlying health of the company. Now the pressure is on to prove that.

Georgiadis, a veteran of Google Inc., is a sharp thinker about all things digital. And she's got new partners working with her to fix Mattel's problems, including recently named CFO Joe Euteneuer and chief technology officer Sven Gerjets.

We'll soon find out if all these fresh eyes can see their way out of a problem that seems like it could hardly be worse.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.


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