Hot Wheels aren’t so hot and Barbie may need more than a makeover these days.

After Mattel Inc., the El Segundo manufacturer of these iconic toy lines, reported dire financials in the third quarter, the company is counting on its Chinese expansions, a new digitally savvy CEO and some serious belt tightening to stay afloat.

But in the short term, analysts said, Mattel will continue to struggle at least into the holiday season with further sales declines as key retail clients close brick-and-mortar stores.

“Mattel is in critical condition and is laden with debt,” said Linda Bolton Weiser, senior analyst at Great Falls, Mont., financial firm D.A. Davidson Equity Capital Markets. “A quarter of the company’s offerings have troubled brands.”

The company in late October reported a net loss in its third-quarter earnings that sent its stock tumbling by 27 percent. This was the fourth consecutive quarter Mattel missed estimates. The company, which already cut dividends once this year, said it would suspended dividend payouts for the upcoming quarter.

The move saves $50 million, Mattel said, but that doesn’t appear to be enough: the company also announced plans to cut another $650 million in costs over the next two years.

Mattel posted a third quarter net loss of $603.3 million a 355 percent decrease compared to the $236.3 million profit from the same period last year. Company revenue declined 13 percent to $1.56 billion from $1.8 billion in the third quarter of 2016.

Mattel reported $2.3 billion in liabilities as of Sept. 30, up from $1.6 billion a year earlier.

The company attributed its poor financials to the bankruptcy of toy retailer Toys R Us Inc. as well as weak demand across its core products including Barbie and Hot Wheels as well as Monster High and Thomas & Friends.

“Our Q3 performance was clearly disappointing. … Results in the quarter reflect continued challenges,” Margo Georgiadis, Mattel’s new chief executive, said in a quarterly earnings call.

Mattel lost more than 50 percent of its stock value over the past year.

It also fell from No. 7 in 2016 to No. 15 this year on the Business Journal’s list of the largest L.A.-area public companies as ranked by market capitalization in July. Its market cap decreased to $5.4 billion from $5.7 billion year to year on the list, but as of Nov. 1, the company’s market cap was under $4.7 billion.

The company’s stock closed at $13.55 a share Nov. 1, down 12 percent from a week earlier.

Mattel did not respond to requests for comment last week.

Toying with challenges

The genesis of Mattel’s recent challenges is difficult to pinpoint, but some analysts said the loss of Walt Disney Co.’s Princess toy line was an important moment.

The toy manufacturing deal was estimated to be worth $300 million to $500 million at the end of 2015, money its rival Hasbro Inc. of Pawtucket, R.I. now collects.

“The hole they tried to fill with the loss of that contract led to a lot of new, unsuccessful products on the market like the Teenage Mutant Ninja Turtles and the Mega Blocks line,” D.A. Davidson’s Weiser said.

Mattel rebounded by announcing long-term ambitious plans with Hangzhou, China-based e-commerce giant Alibaba Group Holding Ltd., signaling an intentional shift toward online sales and a bigger interest in the Chinese market.

Mattel in August also announced the next phase of its partnership with Babytree, China’s largest parenting website, to co-develop a network of learning centers across that country. This move comes as the company positions itself to introduce its Fisher-Price child educational line to the country.

“Sales from China account for less than 10 percent of Mattel’s revenue, and while the company’s long-term plans seem promising, they won’t have a significant effect on its immediate performance,” Stephanie Wissink, an analyst at Jefferies, a New York-based investment banking firm, said this summer after the deal was announced.

The company noted dismal sales numbers in its third-quarter earnings report. Worldwide gross sales for the Barbie brand were down 6 percent, the American Girl brands were down 30 percent, Fisher-Price brands were down 15 percent, and some other brands targeting girls, including Monster High and DC Super Hero Girls, were down 40 percent, the company said.

“The company needs to come up with new strategies for its struggling brands,” Weiser said.

She said the fourth-quarter expectations were low mostly due to the Toy R Us bankruptcy.

“Toys R Us will most likely be closing stores early next year, and they will not want a high inventory, which in turn will see low sales for next quarter,” Weiser said.

Digital plays

Another aspect of Mattel’s troubles is the on-going transition to fully embrace the digital sphere as it competes with online sales and the decline of brick-and-mortar retailers, said Richard Gottlieb, founder of New York-based consultancy firm Global Toy Experts.

Mattel hired Georgiadis, a former Google executive, in February.

“I applaud Mattel for doing that, bringing in a pair of digital eyes,” Gottlieb said. “She’s done a lot of cost-cutting so far and is steering the ship around, while at the same time repairing its engine.”

Other than continuing to push the Chinese expansion and cutting costs over the next two years, Georgiadis hasn’t divulged much about her strategy.

Yet at least one analyst has speculated that the company could be a takeover target.

“At this point, we think investors can start looking at other end games, including the possible sale of the company,” Gerrick Johnson, an analyst at New York-based BMO Capital, wrote in a research note.

Sale prospects for Mattel are unlikely, countered some analysts who follow the company.

“While Mattel does have some valuable consumer products brands, it is not an (intellectual property) powerhouse currently,” Weiser said.

For now, the company seems to be simply trying to stop the hemorrhaging.

“When you have a company that’s been in decline, Chief Financial Officer Joseph J. Euteneuer said in the third-quarter earnings call, “the first thing you do is get to flat.”

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