Ruling could mean end to pouty-lipped Bratz

Wachovia analyst Timothy Conder said that if upheld, the ruling is a “large win” for Mattel, which has seen sales of its Barbie doll weaken in recent years.

“It effectively removes Bratz from the competitive landscape,” Conder wrote in a note to investors. “This is obviously much more important and critical than any one-time monetary damages.”

Investors agreed, sending Mattel shares up 85 cents, or 6.4 percent, to $14.05 in afternoon trading.

Stifel Nicolaus analyst Drew Crum likewise called the ruling a “stunning victory” for Mattel, one that “transforms the competitive landscape of the $2 billion U.S fashion doll category and severely weakens competition.”

Still, the court battle continues to be expensive for both companies, and even if MGA’s appeal is granted, the company is likely to be diminished, McGowan said.

“They’ll go back to business as if nothing happened, except they spent a lot of money,” McGowan said. “Meanwhile, the market has softened for Bratz anyway, so they’re not going to go back to what it was. And that’s the best possible outcome.”

Another scenario is that MGA would pay a “pretty hefty royalty” to Mattel and keep selling Bratz. McGowan said it is unlikely Mattel would bury the Bratz brand altogether because it continues to have some cachet.

“The best outcome is a balancing of both sides, but Mattel clearly has the strong hand at this point,” he said.

BMO Capital Markets analyst Gerrick Johnson said the Bratz brand has “declined significantly,” estimating that sales have fallen from $750 million in 2005 to just under $300 million in 2008.

Domestic sales of Barbie were down 15 percent in 2007. For the year ended in October 2008, overall fashion-doll sales came to $1.65 billion, down 6 percent for the year ended in October 2006, according to market research firm NPD Group.

Johnson said that even if the ruling is upheld, MGA is likely to persevere with the other brands it owns, including its Little Tykes line of children’s toys.

“It’s not going to put them out of business, but they do lose their largest brand,” he said.

Aside from Mattel, another likely benefactor of the ruling could be Jakks Pacific Inc. which makes Hannah Montana and Camp Rock dolls, which have been gaining market share as Barbie and Bratz decline.

“At retail, Bratz occupies about 24 feet at Toys “R” Us, 11 feet at Target and 12 to 16 feet at Wal-Mart,” Johnson said. “Should this injunction hold, this time next year, that shelf space will be up for grabs in the fashion doll isle.”

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