Shares of Mattel (MAT) dropped more than 9 percent in premarket trading Thursday after the world's largest toy maker said sales of key toys like Barbie and Fisher-Price preschool items dropped in its fourth quarter.
CEO Bryan Stockton called 2013 a "challenging and transformative year at retail."
Toy makers count on the November and December holiday season to make 40 percent or more of annual revenue. But traditional toy makers are struggling as kids turn more toward electronic devices and video games.
While fourth-quarter net income climbed 21 percent from year-ago results depressed by a litigation charge, its quarterly performance missed both analyst estimates and the company's own expectations.
For the three months ended Dec. 31, Mattel earned $369.2 million, or $1.07 a share.
Analysts surveyed by FactSet expected earnings of $1.19 a share.
Revenue dropped 7 percent to $2.11 billion from $2.26 billion. Analysts expected $2.37 billion.
Barbie and Fisher-Price sales both declined 13 percent. Sales for Hot Wheels fell 8 percent. One bright spot was American Girl, which reported a 3 percent sales increase. Mattel said the performance was mostly helped by sales of the 2013 Girl of the Year, Saige.
CEO Stockton said weakness was mostly in the U.S. and the El Segundo, Calif.-based toy maker is continuing to invest in emerging markets like China and Russia.
Mattel's full-year net income increased to $903.9 million, or $2.58 a share, from $776.5 million, or $2.22 a share, in the previous year.
Annual revenue edged up 1 percent to $6.48 billion from $6.42 billion.
Shares fell $4.11, or 9.6 percent to $38.90 in premarket trading about an hour ahead of the market open. The stock has fallen 10 percent so far this year.