Mattel Inc. (MAT), the world's largest toy maker, said Monday its third-quarter profit fell 5.2 percent due to lower worldwide sales of its flagship Barbie (search) doll line, which plunged 26 percent.

No. 2 Hasbro Inc. (HAS) posted higher third-quarter earnings as it cut costs, but the results were weaker than expected, with revenue down 2 percent as sales of its once-hot Beyblade continued falling.

Both toymakers said the retail environment remained "challenging."

"We are currently dealing with broad consumer uncertainty related to higher gasoline prices and a lackluster employment picture which translates into uninspiring consumer confidence levels," Mattel's Chief Executive Robert Eckert said on a conference call.

He said retailers are "less than sanguine" about taking inventory. Most retailers are deciding shelf space based on past performance and would rather "chase demand" than take goods early.

Toymakers and retailers depend on the winter holiday season for most of their profits. Roughly 50 percent of toy sales are rung up in the fourth quarter alone, according to the NPD Group, a New York-based market information company.

The U.S. toy industry is still recovering from weak sales in 2003, when the holiday season was hit by a price war that drove FAO Inc., parent of FAO Schwarz toy stores, and mall-based toy chain KB Toys to file for bankruptcy protection.

Mattel reported net income of $255.9 million, or 61 cents a share, in the third quarter, down from $270 million, or 61 cents a share, last year. Analysts surveyed by Thomson First Call had projected earnings of 60 cents per share in the quarter.

Mattel said worldwide net sales for the quarter were $1.67 billion, down 2 percent from $1.70 billion in the same period last year.

U.S. gross sales were down 9 percent and international gross sales rose 6 percent, including a benefit from changes in currency exchange rates of 4 percentage points.

Worldwide gross sales for the Mattel Brands business division, which includes the Barbie brand, were $1.06 billion, down 9 percent compared with a year ago. Worldwide gross sales of Barbie brand toys declined 13 percent.

Gross sales worldwide of Hot wheels (search), Matchbox (search) and Tyco R/C (search) toys fell 3 percent. Sales for Mattel's entertainment segment, which includes games, puzzles, were up 13 percent.

The Fisher-Price Brands (search) unit's worldwide gross sales totaled $683.1 million, up 7 percent. Worldwide gross sales for the American Girl division came to $61.5 million, up 9 percent.

Hasbro said third-quarter net income rose to $88.7 million from $85.8 million, while earnings per share fell to 45 cents from 48 cents per share on an increase in average shares outstanding.

Analysts, on average, estimated profit of 51 cents per share from Hasbro, the maker of My Little Pony (search) and Transformers, according to Reuters Estimates.

Revenue fell 2 percent to $947.3 million from $971.1 million.

Hasbro Chief Executive Alfred J. Verrecchia said third quarter top-line performance was "disappointing," with a "challenging" environment and softness in the boys' division.

He said Hasbro was confident it could continue to increase earnings over the rest of the year as it cut costs and achieved its operating margin goal of 12 percent or better by 2005.

"However, given our top line performance year-to-date and the uncertain retail environment, it is increasingly unlikely that we will achieve our goal of revenue growth for 2004," Verrecchia said in a statement.

Reuters and the Associated Press contributed to this report.