updated 9/18/2006 5:19:11 PM ET 2006-09-18T21:19:11

Investors’ hopes for solid holiday toy sales are rising, and that has helped stocks of major toy companies stage a comeback in recent weeks after taking a beating this past spring and summer.

Improving fortunes at toy companies like Mattel Inc. and positive early reception to some key products have contributed to an improved holiday outlook. Over the past three months, shares of Mattel Inc., the nation’s largest toy maker, rose 17 percent, while shares of No. 2 Hasbro Inc. gained 22 percent.

The Dow Jones index that tracks toy stocks is up 22.28 percent for the past three months and 5.78 percent for the past month.

That was a big improvement from double-digit declines in toy stocks earlier in the year, a decline partly fueled by analysts’ concerns about the lack of a summer movie of the caliber of “Star Wars,” which gave stores a bonanza in sales of related merchandise last year.

“I think the worst is behind it,” said John Taylor, a toy analyst at Arcadia Investments, a research company.

Hasbro, the main supplier for “Star Wars” toys, was able to keep the interest in the franchise going this summer with a steady flow of products. Taylor also pointed out that investors are also now focusing on the promise of next year’s expected blockbuster films “Spiderman III” and “Transformers,” for which the toy company is the main toy supplier.

As for Mattel, sales of Barbie continue to erode but at a slower pace, according to its latest quarterly report.

Meanwhile, analysts are encouraged by changes being made at Toys R Us Inc., the nation’s second-largest toy seller behind Wal-Mart Stores Inc. Toys R Us, which became private last year, is now under the stewardship of Jerry Storch, former chairman of Target Corp., who became chairman and CEO in February.

Storch is decluttering the stores and aims to transform Toys R Us as the destination for cool and trendy toys. Reflecting the personality shift is the company’s new holiday campaign that capitalizes on NBC’s hot game show “Deal or No Deal.”

Toy executives hope the buzz will help reverse the fortunes of an industry that has struggled in recent years, in part because children are growing out of toys at a younger age and preferring video games and other gadgets. Sales of traditional toys fell 4 percent to $21.3 billion in 2005, from $22.1 billion in 2004, according to NPD Group Inc., a market research firm in Port Washington, N.Y.

“I think there is a lot of good stuff out there,” said Chris Byrne, an independent toy consultant, noting that toy makers are enhancing basic play patterns with new technology.

One anticipated release is from Mattel’s Fisher Price, which is unveiling on Tuesday Elmo T.M.X, an interactive toy that has been seen only by a small group of industry executives. Executives at KB Toys Inc. and Toys R Us said pre-orders for Elmo T.M.X. have exceeded expectations.

Toy retailers also say they’re encouraged by consumer reaction to other holiday toys, tested this summer.

Bob Weinberg, senior vice president of merchandising and product development of KB Toys, said Play Along’s Speed Stacks, a game where children race to stack cups; and merchandise related to Barbie’s new DVD “Barbie in the 12 Dancing Princes,” are among the toys that are doing well so far. Play Along is a division of Jakks Pacific.

Harold Chizick, vice president of global marketing at Spin Master Ltd., said it has sold out its stock to retailers of its four holiday front-runners. They are Giggle and Shake Elmo chair; Moonsand, colored sand that never dries out; Air Hog Storm Launcher, a radio-controlled vehicle; and Little Luvables, a teddy bear kit.

“I think this year has been one of the most encouraging in the last three years,” Chizick said.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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