Toys R Us bought FAO Schwarz in May and is now ready to do something interesting with it.

It's a pretty bold move for a tough retail market. Toys R Us is opening FAO Schwarz boutiques in some of its stores. It's also relaunching the upscale toy seller's website, FAO.com. A year ago, this would have been suicide, but now, it might work out. With retailers in every sector fighting for an edge, this move may beef up the Toys R Us in-store experience, with the online play helping it reach higher-spending consumers that may not have access to an FAO brick-and-mortar spot.

Hasbro's top line contracted 2%, and earnings per share, even with some dilution from a joint venture with Discovery Communications (NASDAQ: DISCA) and investments in Hasbro's virtual-studio initiative, increased 11% to 99 cents. Expectations were beat by six pennies. Gee, that was better than Mattel's performance. The maker of Barbie actually saw a per-share earnings decline and came in line with forecasts.

First, here's the data. Sales decreased 8%. They were affected, in part, by currency translation. Earnings per share came in at 63 cents. This was two pennies below last year's income figure. According to Bloomberg, that profit performance misses expectations by a penny, but I've read other sources which report that Mattel met expectations. I think I'll call this one in line with projections.

In the current economic environment, a lot of companies are cutting back costs wherever they can in hopes of boosting earnings, but entertainment giant Walt Disney (NYSE: DIS) is taking a different approach and spending in hopes of boosting its sales.

Disney is hoping that by completely revamping its retail stores that it will be able to lure in more customers, keep them longer, and encourage more sales. In order to make the best of their new marketing direction, they have enlisted the aid of one of the greatest (in my opinion) retail designers out there, Steve Jobs.

JAKKS Pacific (NASDAQ: JAKK) is in rough shape. Sure, the toy industry can be tough. Just ask Hasbro (NYSE: HAS) and Mattel (NYSE: MAT). Even with great brands stocking a powerhouse portfolio, getting, and then keeping, the attention of kids is a difficult task. Well, JAKKS Pacific not only has that challenge to contend with, it has others as well.

Let's start with the awful earnings report management released to the market after the bell on Tuesday. For the second quarter, the company lost 3 cents per share on an adjusted basis. This compares to a profit of 17 cents per share in the year-ago period. Revenues were flat and unexciting.

Mattel, Inc. (NYSE: MAT) is all about fun and games, but it doesn't play around when it competes against Hasbro, Inc. (NYSE: HAS) and JAKKS Pacific (NASDAQ: JAKK). In fact, the stock is up over 7% today as of this writing on the toy manufacturer's earnings news. According to Reuters, Mattel made 6 cents per share during the second quarter, beating estimates by a whopping five pennies.

Pretty good news for Mattel, considering it's been having trouble lately with its Barbie line. Mattel has also had problems with its top-line sales. They dropped 19% in Q2. Fluctuations in the value of the dollar helped to hinder the sales picture, but make no mistake -- Mattel has to step things up a couple notches to keep the top line healthy. Toys are a difficult category to sell during a recession. And when toys do sell, even during the Christmas retail period, they might not command top dollar. Hot toys do, of course, but an entire portfolio cannot necessarily be saved by a single fad item.

This morning, Toys R Us Inc. announced that it purchased high-end toy retailer FAO Schwarz. FAO has struggled mightily for years, thanks to harsh competition from discount toy stores.

Toys R Us CEO Jerry Storch stated, "We will work tirelessly to preserve the distinctiveness and integrity of the FAO Schwarz stores and brand as we grow the business and, indeed, take the brand to even greater heights."

Hasbro (NYSE: HAS), a toymaker that competes with Mattel (NYSE: MAT) and JAKKS Pacific (NASDAQ: JAKK), reported results for the first quarter on Monday. They weren't that spectacular. No big earnings beat here. Net sales were down 6%, even excluding the effect of currency translation. Net income dropped 44% to $0.14 per share. According to this source, that number unfortunately merely met Wall Street expectations.

Of course, I suppose things could have been worse. Hasbro could have missed expectations by a mile. In this kind of economy, we probably should be glad that a company whose products can easily be cut from any discretionary family budget at least was able to keep up with prevailing wisdom.

JAKKS Pacific (NASDAQ: JAKK), a toy maker which competes with Hasbro (NYSE: HAS) and Mattel (NYSE: MAT), did not have a merry Christmas. In that regard, it's no different than the competition. Times are tough, and since toys are not a necessity, it's no wonder that earnings for JAKKS Pacific missed Q4 estimates by a rather significant amount. Net sales dipped by over 5%, and net income dropped 47% to $0.55 per share according to the earnings release. The call was for $1.02 per share. Did I say estimates missed by a rather significant amount? I didn't realize that I was in the mood for understatement.

Mattel, Inc. (NYSE: MAT), big rival of Hasbro, Inc. (NYSE: HAS) and JAKKS Pacific (NASDAQ: JAKK), had one apocalyptically bad quarter. According to today's Stocks in the News, the toy maker earned $0.49 per share in the fourth quarter. Expectations were for $0.72 per share. Know that horrible Christmas retail season you've been hearing about? It's real.

Mattel, it seems, wasn't able to leverage any of its brand power to save itself from the recession. Well, I suppose that isn't entirely true, since American Girl sales went up 5% in Q4 according to the corporate press release. But Mattel's famous, historical brands, Hot Wheels and Barbie, did no heavy lifting whatsoever, and you would have expected them to help out at least a little. Worldwide gross sales for Fisher Price decreased 10%. For Barbie, the plunge was 21%. And for the Wheels category (which includes Hot Wheels, Matchbox, and remote-control items), sales dropped 19%.

Mattel Inc. (NYSE: MAT), which competes with toy makers Hasbro Inc. (NYSE: HAS) and JAKKS Pacific Inc. (NASDAQ: JAKK), will be reporting earnings for the fourth quarter on Monday, February 2. This is going to be an exciting one for the market. Why? Well, it was an awful Christmas for retail. If Mattel, a company that thrives on the season, can beat expectations, then investors can maybe feel a little bit better about the market. Amazon.com (NASDAQ: AMZN) surprised Wall Street and went beyond expectations during the holiday season, so perhaps there is hope for Mattel.

But I can't say I'd be willing to bet on it. Mattel should earn somewhere around $0.72 per share on the bottom line. That wouldn't be a great number, but it wouldn't be a disaster, either, because in the previous year Mattel delivered $0.76 per share.