Updated from 12:21 p.m. EDT

Shares of

Hasbro

(HAS) - Get Report

dropped on the toy company's warning Thursday that it could face further difficulties in the second half of the year.

Investors also unloaded shares of competitor

Mattel

(MAT) - Get Report

after the company reported quarterly earnings depressed by soft international sales.

Hasbro's shares plummeted 3 7/8, or 24%, finishing Thursday regular trading at a 52-week low of 12 1/16. Shares of Mattel closed down 3/8, or 3%, at 12 3/4.

Hasbro reported that its second-quarter earnings fell 80% as sales of Star Wars, Furby and Pokemon toys slowed, although the results did meet Wall Street's forecasts.

Pawtucket, R.I.-based Hasbro reported net earnings of $6.5 million, or 4 cents a share -- the amount predicted by analysts polled by

First Call/Thomson Financial.

The second-quarter figure compares with earnings of $32.3 million, or 16 cents a share, in the second quarter of 1999.

Hasbro said last year's sales had swelled on exceptionally strong shipments of Star Wars and Furby items plus positive foreign currency translation. Worldwide revenues during the second quarter of 2000 were $778 million, down about 11% from $875 million a year ago.

Hasbro also took a pretax loss of $5 million, or 2 cents a share, attributable to the pre-introduction stages of the company's Internet games initiative,

Games.com.

Separately, Mattel said 2000 second-quarter income from continuing operations was $6 million, or a penny a share, consistent with the consensus estimate of analysts polled by

First Call/Thomson Financial

. The figure represents a 64% drop from last year, when Mattel reported underlying income of $16.5 million, or 4 cents a share, excluding a $227 million after-tax restructuring charge.

In the U.S., revenue from continuing operations increased 7%, but in Mattel's 150-plus international markets, sales figures fell 9%. Overall, net sales from continuing operations were $818 million, about a 2% increase from $802 million in last year's second quarter.

El Segundo, Calif.-based Mattel said domestic sales increased for core brands such as Barbie, Fisher-Price and Hot Wheels. Available in U.S. markets only, gross sales for Mattel's direct marketing division, which includes Pleasant Co. as well as the Barbie Collector and Fisher-Price catalogs, were $41.8 million for the quarter, a 15% increase.

Since its ill-fated $3.5 billion acquisition of

The Learning Co.

in May 1999, Mattel has suffered huge losses in the software unit, sending shares downward and resulting in the dismissal of CEO Jill Barad. The company said Thursday it is still looking to dispose of the division. Also, Mattel said it is treating entertainment company Mattel Interactive as a discontinued operation in financial statements.

Chairman and Chief Executive Officer Robert A.

Eckert in a statement only vaguely referred to The Learning Co., instead chalking up the quarter to European retailers' adjustments to a strong U.S. dollar and "just-in-time" inventory. He said the company expects international sales to improve during the second half of the year.

In contrast, Hasbro's chairman and chief executive, Alan G. Hassenfeld, said in a statement: "Although our first-half performance met expectations, we face several challenges which could negatively impact our second half." He noted that U.S. sales of Pokemon toys were softening, although the company hoped the toy line would receive a boost from the release of a new Pokemon movie and new television episodes.

Hassenfeld also warned that a worldwide shortage of electronic components could hurt Hasbro, as could high oil prices that raise resin and transportation costs, continuing softness in the interactive entertainment business and "the overall lackluster retailing environment."

Still, Hassenfeld was optimistic about the introduction of such new toys as Action Man, My Real Baby and Bertie Bott's Every Flavored Beans, of Harry Potter fame, as well as several interactive games.

The company said some core brands performed especially well during the three-month period, namely Play-Doh, Monopoly and family board games. Hasbro also benefited from demand for Pokemon toys and games as well as other trading card games.

During the second quarter, Hasbro repurchased close to 250,000 shares for about $4 million, bringing the year's total buyback to $367 million for roughly 21.4 million shares.