The AIM-listed toymaker said profit before tax for the year ending 31 August is now expected to be £10mln, which is 10% lower than last year.
Management said Christmas trading period was “extremely challenging” with the whole UK toy market contracting for the second year in a row, pushing down sales of core products.
The company, which also develops and distributes games and giftware, was more upbeat about trading in the current year, saying it “will deliver one of our strongest second-half performances to date”.
“Our confidence for the second half has been boosted by the reactions from our customers to recent product previews and presentations,” it said in a trading update.
New lines will feature licensed-in brands such as Peppa Pig, Teletubbies and Scooby-Doo, scheduled to launch from January through to early summer.
Shares dropped 17% to 317p on Friday morning.