MAT Mattel Inc

Barbie is back, posting her biggest sales increase in years. Mattel Inc.'s (MAT) iconic doll and a big improvement in overall profitability helped the largest U.S. toy maker generate an 86% increase in fourth-quarter profit, topping analysts' estimates.

Mattel executives on Friday expressed optimism about the company's 2010 revenue prospects, citing strong sales of such toys as Barbie's townhouse, Matchbox and the holiday sell-out Mind Flex game, as well as an improved lineup of toys based on movies and television shows.

Said Chairman and Chief Executive Robert Eckert: "2009 set the stage for what I'm confident will be a strong year for Mattel in 2010 and for years to come."

Analysts said Mattel's year-end inventories were in good shape, which could bode well for retailer restocking trends in the first half of this year.

Shares, however, recently fell 1% to $19.84. One analyst suggested investors were disappointed that Mattel executives played down the idea of share repurchases, while another analyst pointed to slightly disappointing sales.

The largest U.S. toy maker reported a profit of $328.4 million, or 89 cents a share, up from $176.4 million, or 49 cents, a year earlier. The periods included tax benefits of 8 cents a share and 13 cents, respectively.

Despite a 12% increase in Barbie sales, companywide sales were lackluster, with revenue climbing 1% to $1.96 billion. Sales fell 2% in the U.S., where Eckert said Mattel lost "a little bit" of market share, mostly as a result of fewer toys tied to entertainment than last year.

Analysts polled by Thomson Reuters had most recently forecast earnings of 68 cents a share on $1.98 billion in revenue for the El Segundo, Calif., company.

While sales were below Wall Street's forecasts, profitability was well above expectations.

Price increases earlier in the year helped push gross profit to 53.4% of sales from 46%. That's higher than company's often-cited long-term target of 50%, Wedbush Morgan analyst Chris White said in a note to clients. Operating margin rose more than 4 percentage points to 13.5%.

Mattel executives said they expect increased pressure from rising commodity costs this year compared to 2009, but the company is on track to generate $180 million to $200 million in annual savings from its previously announced efforts to lower costs. And Mattel has raised prices on some of its new items, though overall, it doesn't expect big price increases for the year, executives said.

"We will price our products consistent with our goals of long-term operating margin of 15% to 20%," Eckert said.

Toy makers all year worked to bring inventories in line with demand hurt by the global economic woes. In October, Eckert said the company's inventories and those at retailers were better-prepared for the holiday season than they were a year earlier.

By year end, inventories were down a whopping 27% from last year to their lowest level since year-end 2002, White said.

Mattel's operations generated $945 million in cash in 2009, allowing it to reduce debt and boost its cash position. Executives estimated capital spending will be $150 million or less in 2010, compared with about $121 million last year.

"The economy certainly isn't out of the woods, so we're going to continue to run a conservative cash flow machine," Eckert said.

He said a look back at companies that have repurchased shares left him cautious about buybacks.

"If you really do the backward analysis, most of them do not contribute to shareholder value," he said. "We're going to be cautious about these things. Dividends, in my mind's eye, are more important than share repurchases, but that's up to the board to decide."

Sales of Mattel's girls and boy brands unit, its biggest arm and the one that includes Barbie and Hot Wheels, jumped 4% from a year ago amid the strong Barbie sales and an 11% increase in sales at its Wheels segment, which includes Hot Wheels, Matchbox and Tyco R/C.

Meanwhile, Fisher-Price sales fell 3%, and American Girl sales were flat.

In 2008, Mattel benefited from toys tied to a relatively strong entertainment lineup, including Batman, Speed Racer and Kung Fu Panda. While 2009 lacked many strong movie and TV titles in Mattel's toy lineup, the company expects 2010 will be better. It said it is pleased with initial sales of action figures tied to the blockbuster hit Avatar, and said Disney's Rapunzel movie and Mattel's new line of toys for World Wrestling Entertainment (WWE) should also boost sales.

(Nathan Becker contributed to this story.)

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; maryellen.lloyd@dowjones.com

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