Mattel, the nation's largest toymaker, reported its fourth quarter and 2005 financial results, and even though Q4 domestic sales were down 3%, the company announced earnings of $.69 per share, considerably better than the $.49 per share that analysts were predicting.  The better-than-expected earnings report led to a 7% rise in the price of Mattel shares on the New York Stock Exchange.

Mattel's net sales for 2005 were $5.18 billion, a 1 percent increase from 2004, which was largely the result of currency fluctuations.  For the year U.S. sales fell 2 percent while international sales were up 5 percent.  Mattel's key problem is the declining sales of its core brands -- sales of Barbie dolls and Hot Wheels were both down, with the Barbie brand dropping 11%, and the wheels category down 7% worldwide in 2005.

The bright spots for Mattel were the American Girl brand dolls, where sales were up 15% for the year; and the Fisher-Price unit, which posted a 5% gain.  Mattel faces more challenges in 2006 including the increasing cost of raw materials and a weak retail environment typified by the troubles at Toys R' Us (see 'Toys R' Us Shutters More Stores'), but on the positive side it has the license for the Pixar film Cars, which should invigorate its wheels category, as well as the license for toys based on Superman Returns.  Both of these films are opening in June and should do very well and have a positive effect on Mattel's Q3 sales.