The slowdown in High Street spending and a fall off in sales growth at the group's famous Regent Street store has caused problems for the toy retailer.

Visitors to Hamley's flagship store fell sharply as the rise in the value of the pound deterred tourists.

The disappointing results caused Hamleys' shares to fell sharply on the London Stock Exchange.

By 1345 GMT the shares had fallen by more than 11%, or 16p, to 118.5p.

But the group hopes that the old fashioned yo-yo will help its profits to bounce back over the crucial Christmas trading period.

The yo-yo is set to be a big hit with the kids over the festive period, with top of the range models selling for more than £100.

The company's pre-tax profits for the half year to August 1 1998 fell to £656,000 ($1.1m) from £1.3m.

The company's new Toystack chain and the House of Toys concessions in Debenhams department stores fell into the red.

Supply problems at Toystack compounded the difficulties for the group.

The retailer said trading conditions had not improved since it warned that profits would fall short of expectations in July and it did not expect to be able to make up lost ground in the second half.

Chairman Howard Dyer said: "Like-for-like sales are still behind prior year levels although margins remain ahead."

Nevertheless the group's dividend was maintained at 3.3p.