Moving sex shops from seedy red-light districts into more up-market areas and catering to couples as well as the over-50s are also part of Beate Uhse's plans to reposition itself as a lifestyle concern.

Earnings before tax and interest for the first half of 2007 were down more than 80 percent from a year ago to 1.2 million euros ($1.6 million), the German-based company said.

The two main pillars of the operation -- retail and mail order -- both turned in losses as overall turnover slumped 5.2 percent to 128.6 million euros.

"It goes without saying that is far from satisfactory," said management board spokesman Otto Christian Lindemann. "We are nevertheless more than confident that we will be able to bring the company rapidly back on course."

The company blamed the profit decline partly on the effects of water damage to its main distribution center in the Netherlands, which badly hit sales during the important Christmas period.

"Delivery service standards are not yet at the targeted level and customer confidence, which suffered a knock due to delayed deliveries, has not yet been regained in full," the company said in a statement.

Founded by former female pilot

Founded shortly after World War II by a former female pilot named Beate Uhse, the company operates 300 sex shops in 11 countries and has mail order operations in nine.

But it has been battling in recent years against inroads from the Internet, which have led to a dramatic fall in demand for CDs and videos as customers download sex movies for free.

Changing tastes have also prompted plans for a new range of products such as erotic jewelry, perfumes and music for different age groups as well as "sexy night-life" articles such as lingerie and sex toys.

Shops are also being renovated, with some being fitted with changing rooms to allow women to try on lingerie under different lighting conditions.

Beate Uhse is planning on a period of two years for the makeover. It sees 2007 as a year of transition, enabling the company to prepare for the markets of the future, said Lindemann.