Lego Shows Even Hottest Companies Can Go Cold

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Lego was, until recently, the darling of the global toy industry. Its original building block toys were turned into everything from Star Wars figures to video games. Lego, the hottest toy company in the world, has suddenly gotten cold.

Lego announced a 5% drop in revenue for the first half of the year. It also said it would fire 1,400 of its 18,200 employees. In specific, it disclosed:

  • Revenue down 5 percent to DKK 14.9 billion compared with DKK 15.7 billion
  • Operating profit down 6 percent to DKK 4.4 billion compared with DKK 4.7 billion
  • Net profit down 3 percent at DKK 3.4 billion compared with DKK 3.5 billion
  • Cash flow from operating activities was DKK 4.6 billion compared with DKK 3.9 billion

One dollar equals 6.2 Dutch krone (DKK).

Lego joins a line of toy companies that could not keep sales of its best-selling toys growing. The best example of this is Barbie, made by Mattel Inc. (NASDAQ: MAT). The decades-old doll was among the most popular toys in America. As children turned to more sophisticated and electronic toys, Barbie struggled to hold sales.

Lego has a large mountain to climb. An attrition in sales likely means its line of toys has started to lose market share. For the time being, it is clear what companies might have picked up that business. One or more companies are likely to emerge as a new industry leader in growth. Hasbro Inc.’s (NASDAQ: HAS) Connect is among the top-selling toys in America. Walt Disney Co. (NYSE: DIS) has its own line of female dolls. Crayola and Slinky products have become popular again.

The toy industry has some analogs with the video game console business. For years Nintendo took market share from the Xbox and PlayStation. Nintendo could not keep its lead as new generations of it Wii product became less popular with consumers. Its stock collapsed as a result. Lego may be headed down the same road.