Mattel Inc, the No. 1 toy company, staked its claim as the winner of the holiday shopping season as strong demand for its core Barbie and American Girl brands helped quarterly earnings beat expectations.

The company also said rising costs of oil and Chinese labor would entail price increases in 2011, but analysts questioned whether consumers will accept them in a sluggish economy.

They did better than their competitors, and the signals coming out of the retailers weren't entirely positive about the holiday season, said Ted Moore, portfolio manager with Fifth Third Asset Management, which owns Mattel shares. They picked up market share, not dramatically, but a solid quarter all the way around.

Mattel's better-than-expected results and rising inventories come just weeks after smaller rivals Hasbro Inc and LeapFrog Enterprises Inc said sales had slowed late in the biggest selling season of the year.

BMO Capital Markets analyst Gerrick Johnson said Mattel had gained share and was looking strong to continue its momentum.

Yeah, fourth quarter's good; they bucked the trend of weakness, said Johnson, who has an outperform rating on the shares. These guys made their numbers and are set up really nicely for 2011.

Johnson cited strong new product launches like Monster High and Sing-A-Ma-Jig and a good performance by Barbie. The new products all sold out in the fourth quarter, and were measured in tens of millions of dollars in 2010, but will grow to hundreds of millions of dollars this year.

We gained market share in virtually every one of the (industry) segments -- dolls, vehicles, action figures, games, infant and preschool, Chief Executive Officer Robert Eckert told analysts on a conference call.

Mattel's fourth-quarter net profit was $325.2 million, or 89 cents a share, compared with $328.4 million, or 89 cents a share, a year earlier. That was 3 cents more than analysts polled by Thomson Reuters I/B/E/S had expected.

A lower-than-expected tax rate added 3 cents to 5 cents a share to earnings, analysts said.

The company, which announced the departure of the president of Mattel Brands, Neil Friedman, last month, said Barbie and American Girl sales rose 8 percent. Fisher-Price sales remained flat, while Hot Wheels was up 1 percent.

Overall net sales at Mattel, which counts billionaire investor Carl Icahn among its investors, rose 9 percent to $2.12 billion, above the $2.09 billion analysts had expected. Sales included a reduction of 2 percentage points due to currency exchange rates.

Gross sales were up 11 percent in the United States and 6 percent internationally.

The company said inventory levels rose to meet growing demand and to improve customer service levels, compared with significant liquidation of inventories in 2009 due to economic uncertainty. Eckert said inventory levels at the company and within the industry are back to where they were two years ago.

UBS analyst Robert Carroll said the inventories were up 30 percent, but Mattel's comments on demand would alleviate some investor concerns exiting the holidays.

Gross margin fell 1.82 percentage points to 51.6 percent due to higher input costs and royalty payments, but that was still above the 50.3 percent Carroll had expected.

Eckert pointed to a 28 percent increase in the cost of oil and a 20 percent rise in Chinese labor costs, and said prices will be raised to offset that. Officials also cited rising resin and freight costs, and the stronger Chinese currency as pressures.

My sense, it's most likely high single digits in terms of price increases, essentially across the whole line this year, Eckert said, adding that the increases would occur in the second quarter.

However, Fifth Third's Moore said Mattel's aggressive plan to raise prices bears watching as rivals' high inventories may force them to cut prices, pressuring the company.

Shares of El Segundo, California-based Mattel rose 1.7 percent to $24.56 on Nasdaq.

(Reporting by Ben Klayman in Detroit, additional reporting by Dhanya Skariachan in New York and NR Sethuraman in Bangalore; Editing by Unnikrishnan Nair, Dave Zimmerman, Lisa Von Ahn)

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