Kiss and Mattel

You've got to love being a toymaker over the holidays. Market leader Mattel (NYSE: MAT) was certainly busy, boosting its top line by 14% with net sales of $2.1 billion for the period. Net income was up a less satisfying 3%, but that was the result of a favorable tax benefit during the previous year's final quarter. If you look at operating income, it actually clocked in 21% higher.

The strong showing, backed by double-digit sales growth both domestically and abroad, found the company growing earnings per share to $0.75 a share after a $0.69 per share showing a year earlier. Analysts were actually looking for a dip in reported profitability.

That would have been a successful showing anyway, because the 2005 figure is inflated by $0.11 a share because of a tax benefit. An aggressive approach to share buybacks reduced the number of fully diluted shares outstanding by nearly 5% over the past year. That helped pump up this year's bottom line result on a per share basis, but it wasn't necessary, as gross profit margins and operating margins improved during the quarter.

Why is Mattel doing so well? It's not all about the hard-to-find Tickle Me Elmo doll. Barbie is back. The September quarter was the first time that the company had grown year-over-year worldwide sales for Barbie in more than three years. Now it is building on that. In fact, Barbie's 3% top line spurt was better than the 2% advance by the company's seemingly fresher American Girl doll line.

Yes, Mattel is thriving in an environment that cynics figured would be dominated by next-generation video game platforms and MP3 players. We knew that wasn't the case three months ago, when both Mattel and Hasbro (NYSE: HAS) posted better than expected results. The third and fourth quarters are the meaty periods for toymakers, as that is when retailers stock up for the holidays.

This doesn't mean that the entire toy industry is doing as swell as Mattel. Smaller players like LeapFrog (NYSE: LF), Grand Toys (Nasdaq: GRIN), and JAKKS Pacific (Nasdaq: JAKK) have all seen their share prices retreat over the past year.

So well done, Mattel. When times get tough, it's always good to know that Barbie's got your back.

Hasbro is a recommendation for Motley Fool Stock Advisor subscribers. Mattel is a former Inside Value and Hidden Gems pick.

Longtime Fool contributor Rick Munarriz was glad to see that the Elmo TMX dolls are now back in stock. He still has no interest in buying one. He does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.