Mattel Inc, the maker of Barbie dolls and Fisher-Price preschool toys, removed chairman and chief executive Bryan Stockton and warned sales fell 6 percent in the holiday quarter.
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The company's shares fell as much as 11 percent to a three-year low.
Mattel named former PepsiCo Inc executive Christopher Sinclair chairman and interim CEO.
The company has been hit hard in recent years as its iconic Barbie doll has fallen out of favor with young girls, who are reaching for electronic toys such as tablets and watches and dolls based on Walt Disney Co's hit animated movie "Frozen."
Stockton had been Mattel's CEO since January 2012 and was named chairman in 2013.
Sinclair is a current Mattel board member.
Mattel estimated worldwide net sales fell to $1.99 billion in the quarter ended Dec. 31, hurt by a stronger dollar.
Barbie sales have been falling for nearly three years and Mattel's other dolls such as Monster High and American Girl have failed to make up for her fading charm.
In 2009, Barbie held more than a quarter of the market for dolls and accessories in the United States, but that fell to 19.6 percent in 2013.
Mattel's shares fell as low as $24.88 in early trading on the Nasdaq, before recovering to $26.74, down 4.6 percent. (Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Kirti Pandey)