Marvel's dismal fourth quarter performance capped off a very bad year, which saw the company's net sales decline from $319 million to $231 million.  Sales for Toy Biz, Marvel's largest division dropped even more precipitously (40.4%) for the fourth quarter, than they did for the entire year (31.9%).  As a result of Toy Biz's poor performance Marvel has eliminated both positions and product lines at Toy Biz and taken a $22.9 million dollar write-down relating to discontinued lines of games and large dolls.  The performance of Toy Biz is especially disconcerting given the success of the X-Men movie in 2000, which did not, unfortunately translate into sales of the X-Men toys that Toy Biz makes.  The only good news for Marvel was that Toy Biz was not the only toy company that fared poorly; both Hasbro and Mattel, the toy industry leaders, also took their lumps in 2000, which was a horrendous year for the toy industry in general.  Toy Biz has improved the quality of its action figures and focused its product lines, but any hope of success in 2001 will depend on Q4 sales of its movie-licensed Lord of the Rings toys.

Publishing was the lone bright spot for Marvel.  Fourth quarter sales boosted by the success of the Ultimate books were up 12.7%, and for the entire year sales were up 5.1%. The problem is that publishing sales still make up less than 25% of Marvel's total, even with the decline in the Toy Biz numbers, so it's nigh unto impossible for the successful publishing tail to wag the rest of the Marvel financial dog.

Licensing, Marvel's only other revenue stream was a mixed bag for 2000 with sales up in the fourth quarter (from $2.2 million in 1999 to $4 million in 2000), but down sharply for the year (from almost $31 million to just over $19 million).  Marvel's strong licensing number for 1999 was due to initial fees for the Spider-Man movie project.  Although the Spider-Man film won't be released until summer of 2002, which will delay ancillary licensing fees, other film projects may help Marvel in this category in 2001.

Given that Marvel is primarily a toy company now, at least as measured by sales, and that the toy industry had a very bad year in 2000, Marvel's financial reverses are quite understandable.  The toy industry, particularly the action figures portion of it where Toy Biz is heavily invested, tends to be very cyclical.  The question is how much of a downturn can Marvel take given its heavy debt load and limited operating capital?  Marvel's balance sheet was not released along with its operating statement today; we'll report on the rest of the bad news when it becomes available.