Mattel Inc expects its top toys to be popular for the holidays and said it sees some hope among its retail partners for improved sales, sending its shares up nearly 5 percent.

The maker of Barbie and Elmo dolls posted a smaller-than-expected drop in quarterly revenue on Friday, helped by gains in its Hot Wheels and American Girl brands.

Investors sought commentary on the crucial holiday shopping season, after a dismal performance in 2008, when shoppers cut spending on nonessential items like toys.

My sense in talking to retailers is that their view, or at least their hope, is that the worst might be behind us here in the U.S., Chief Executive Robert Eckert told analysts. That said, I don't think anyone's particularly sanguine about how they view the upcoming holiday.

Maybe it won't be a terrible year, but I don't think I would describe it as increased confidence, he said. I think I would describe it as, the lack of new negative news every day at this time of the year is really helpful.

Mattel and rival Hasbro Inc still face price pressure as key retailers Wal-Mart Stores Inc and Target Corp have already begun offering steep discounts to woo shoppers.

Eckert said company revenue was still under pressure due to the weak economy, a move by retailers to tightly manage inventory and a dearth of toy lines tied to movies and other entertainment.

But he said he was confident that Mattel toys such as the Barbie Fashionista doll, Matchbox Rocky the Robot Truck and Hot Wheels Trick Tracks would be popular holiday gifts, even as stagnant wages and unemployment force many families to make hard choices this year.

Inventories are currently down in the double-digit range from a year ago, Eckert said, raising hope that Mattel will not be saddled with loads of unsold merchandise if the season is weaker than expected. But Mattel does have enough inventory to respond quickly if consumer demand picks up, he said.

Mattel shares jumped 4.7 percent to $20.50. Hasbro, which is due to report results on Monday, gained 1.8 percent.

SALES TOP EXPECTATIONS

Mattel's net profit fell to $229.8 million, or 63 cents a share, in the third quarter, from $238.1 million, or 65 cents a share, a year earlier.

Analysts on average were expecting earnings of 63 cents a share, according to Thomson Reuters I/B/E/S.

While headline earnings were essentially in line, we think the quality of results was slightly better, underlying trends are improving and we continue to like the shares for 2010, said Stifel Nicolaus analyst Drew Crum.

Mattel, which also makes action figures and toys based on Walt Disney movies, said net sales fell 8 percent to $1.79 billion, with declines of 2 percent in the United States and 14 percent internationally. Currency exchange rates reduced international revenue by 5 percentage points, Mattel said.

Analysts expected revenue of $1.78 billion.

Top line was decent considering the currency impact, Sterne, Agee & Leach analyst Margaret Whitfield said. It wasn't all that disappointing.

Throughout September, Whitfield said she had not seen many holiday toys on store shelves, and said that could mean retailers are waiting longer to present holiday merchandise. That could lead to a better fourth-quarter performance, she said.

Worldwide sales fell 8 percent for Mattel's Barbie and 4 percent for its Fisher-Price line, and rose 9 percent for Hot Wheels and 4 percent for American Girl.

(Additional reporting by Nivedita Bhattacharjee in Bangalore; Editing by Michele Gershberg and Steve Orlofsky)