By Ananya Mariam Rajesh and Uday Sampath Kumar
(Reuters) -Mattel Inc cut its annual profit forecast on Tuesday and said it would ramp up promotions heading into the busy holiday season as red-hot inflation discourages Americans from spending on its Barbie dolls and Fisher-Price toys.
Shares of the California-based toymaker fell about 4% in extended trade, after it also missed quarterly sales estimates for the first time since March 2020.
Although demand for toys typically stays resilient during economic downturns, repeated price increases to combat rising costs of raw materials, freight and labor have started to weigh on toymakers.
Earlier this month, Hasbro Inc (NASDAQ:HAS) tempered its full-year revenue outlook and warned that demand was starting to slip ahead of the festive season.
Mattel (NASDAQ:MAT), meanwhile, expects demand to accelerate during the crucial holiday shopping season, but said it would conduct more promotions to remain competitive.
"We are in the midst of a challenging macroeconomic environment, which equals volatility," Chief Executive Ynon Kreiz told Reuters.
Mattel reduced its 2022 adjusted profit forecast to between $1.32 and $1.42 per share from $1.42 to $1.48 earlier, but the toymaker's raised prices helped it post an adjusted gross margin of 48.3% in the third quarter, compared with last year's 47.8%.
Kreiz said in an earnings call Mattel has not seen any "meaningful impact" on consumer demand for its toys from the price increases it has undertaken.
"Parents tend to cut spending on the children last when money is tight," CFRA Research equity analyst Zachary Warring said.
Overall gross billings in the unit that makes Hot Wheels rose 12%, helping partly offset a 4% decline in the North America segment driven by declines in sales of Barbie dolls and action figures.
Net sales fell marginally to $1.76 billion in the quarter ended Sept. 30, missing analysts' estimates of $1.78 billion, according to IBES data from Refinitiv.
However, excluding items, the company earned 82 cents per share, beating estimates of 74 cents. It also reiterated its full-year sales forecast.