Mattel Inc. (MAT) on Monday posted a better-than-expected 12 percent increase in quarterly earnings, as the weak dollar and strong sales of toy cars and American Girl dolls (search) offset slumping Barbie sales.

The No. 1 toy maker, whose brands also include Hot Wheels cars, Polly Pocket dolls and Hokey Pokey Elmo, said second-quarter net income rose to $23.5 million, or 6 cents per share, from $20.9 million, or 5 cents per share a year earlier. Shares rose 5.4 percent to $17.67.

The earnings included a net benefit of $10.1 million related to legal settlements. The 2003 quarter included restructuring charges of $14 million.

"It wasn't as bad as some people thought it would be, but it's not enough to make me say they've turned the corner," said Sean McGowan, analyst at Harris Nesbitt Gerard.

Worldwide net sales rose 5 percent to $804 million. Sales were boosted by 2 percentage points due to the weak dollar, which raises the value of overseas sales when they are converted into dollars.

"As I've said before 2004 will be a challenging year for Mattel, and the second quarter was consistent with that outlook," said Chief Executive Bob Eckert. He said the company's biggest obstacle is its weak fashion doll business.

The increases revenue included a 37 percent rise in Hot Wheels, a 12 percent rise in core Fisher-Price and an 18 percent jump in American Girl brands.

The Mattel brands unit, which includes Barbie dolls and Matchbox cars, saw sales rise 4 percent. Worldwide sales of Barbie products fell 13 percent, the company said.

Barbie sales internationally were down 11 percent, and in the United States they fell 15 percent.

Oppenheimer & Co. analyst Linda Bolton Weiser said the Barbie sales were disappointing but she had anticipated the decline caused by some marketing issues of the unit.

"It's good to see some of the other areas came through so strongly," said Weiser, who has a "buy" rating on the shares.

Weiser added she expects Barbie and the company to perform better next year as Mattel is in the midst of a multi-year turnaround plan.

Mattel has made efforts to improve Barbie sales, introducing a story-based "worlds of Barbie" strategy that includes trendy fashions, and new Cali Girl, Fairytopia and Princess and the Pauper doll lines.

Eckert said of the new lines for the holiday season, one would be based on the "American Idol" television show, and the other would be fashion-based, called "Fashion Fever." Eckert doesn't expect to see benefits from the new Barbie strategy until 2005.

The retail toy environment has been difficult lately with slowing industry sales and bankruptcy filings by KB Toys and by the parent of upscale FAO Schwarz toy stores. No. 2 toy seller Toys R Us (TOY) is in the midst of a strategic evaluation, which may lead to many store closings.