MAT Mattel Inc

Mattel Inc.'s (MAT) first-quarter earnings fell 33% on higher legal and advertising fees, but sales rose on the strength of Barbies and other dolls.

The largest U.S. toy maker by revenue has benefited from sales of merchandise tied to the film "Toy Story 3," and the resilience in its iconic Barbie dolls, along with cost-cutting efforts. However, its Fisher-Price division and Hot Wheels and Matchbox car categories have lagged.

"While recognizing we are very early in the year, our solid first quarter results" demonstrate progress the company is making "in the face of a challenging cost environment and a continuation of the difficult economic climate," Chief Financial Officer Kevin Farr said on a conference call with analysts.

Mattel reported a profit of $16.6 million, or 5 cents a share, down from $24.8 million, or 7 cents a share, a year earlier. Sales rose 8.2% to $951.9 million. Analysts polled by Thomson Reuters had most recently forecast earnings of 5 cents on revenue of $904 million.

Earnings fell as advertising and promotion expenses climbed 8.1%, while selling and administrative expenses, which include legal fees, were up 14%. Considerable money is being spent by Mattel on a copyright lawsuit against MGA Entertainment over the popular Bratz dolls. Chief Executive Robert Eckert said during the conference call a jury began deliberating on the long-standing case Monday.

Eckert said Mattel has put in place high single-digit price increases, something retailers may not be thrilled about, but understand in the face of their own grappling with higher energy, labor and other costs.

Executives also said inventory is higher than a year ago, but didn't say by how much. The increase is necessary, they said, because of new product launches, low inventory levels last year and a later Easter, which means later seasonal toy buying.

As far strengths and weaknesses, sales of Mattel's girls and boys brands unit--its biggest arm and the one that includes Barbie and Hot Wheels--grew 15% as Barbie sales rose 14%, and Hot Wheels sales were up 6%. Sales of Fisher-Price brands decreased 2% with the discontinuation of the Sesame Street product line, while its American Girl brands increased 4% on strong sales of Kanani, Girl of the Year 2011.

Domestic sales rose 7% and international sales grew 10%. In Europe, growth in the U.K., Italy, Germany and Central Europe were partially offset by declines elsewhere, executives said. Growth in Latin America was strong throughout, with double-digit percentage growth in Brazil and Mexico. There was growth across most markets in Asia Pacific, with the strongest being China, Australia, and India.

Gross margin rose to 49.7% from 49.1%, aided by higher pricing, but hurt by higher manufacturing costs.

Mattel said it bought back 4 million shares during the quarter for about $100 million.

Rival toy maker Hasbro Inc. (HAS) on Thursday reported its first-quarter earnings fell 71%, missing analysts' estimates, as it spent more on product development and saw double-digit sales declines in its games and puzzles, girls and preschool categories.

Mattel shares are up 4.6% to $26.91. Hasbro is ahead 1.3% to $44.98.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

-Melodie Warner contributed to this article

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