Lego sales dropped for the first time since 2004 last year as the Danish toy maker, known for its iconic colored pastic bricks, struggled on its main markets.
"2017 was a challenging year and overall we are not satisfied with the financial results," chief executive Niels Christiansen said in a statement.
Lego's revenue fell by 7.7 percent from a year earlier, to 35 billion kroner (4.7 billion euros, $5.82 billion), weighing down net profit which plunged by 17.2 percent to 7.8 billion.
Operating profit decreased by 16.8 percent to 10.4 billion.
While Lego revenue continued to rise in China, it fell in North America and most European markets, "primarily due to actions the company took to reduce inventories across its value chain," the company said.
The unlisted, family-owned company liquidated its stock in 2017 by reducing prices.
The world-renowned brand has strongly diversified in recent years, moving into areas such as video games, a hit movie with several sequels, cartoons and Legoland amusement parks.
But the group, grappling with slowing sales that have eroded its profitability since 2016 -- after 11 straight years of growth -- announced in September that it would cut 1,400 jobs worldwide, or about eight percent of its workforce.
For 2018, Lego said it expected profits to stabilise and said it planned to invest to stimulate demand.
"There is no quick-fix and it will take some time to achieve longer-term growth," Christiansen said.
In January, Lego and internet giant Tencent announced a partnership to make online games for children in China.
The Danish company has also developed Lego Boost, a tech-learning tool that allows children to build robots using programming code, as well as a social network for kids called Lego Life.