Hasbro Inc said quarterly sales dropped unexpectedly as demand in the United States petered out at the end of the holiday selling season, and the No. 2 U.S. toy company's shares fell more than 5 percent.

The outlook comes days after smaller rival LeapFrog Enterprises Inc slashed its 2010 earnings forecast after demand for its toys petered out late in the holiday season, too.

The comments from LeapFrog and Hasbro mirror those of many retailers, whose sales slowed late in the holiday season after shoppers flocked to stores to grab bargains right after Thanksgiving.

Target Corp , for example, said toy sales were one of the weaker areas in December.

Hasbro, which makes toys and games under brands like Nerf, Playskool and G.I. Joe, said it now expected to report fourth-quarter sales of $1.3 billion, down from $1.4 billion a year earlier. Analysts on average forecast $1.4 billion, according to Thomson Reuters I/B/E/S.

The company also estimated only a modest increase in 2010 earnings per share from the $2.48 it reported for 2009, excluding a 14-cent tax benefit in the first quarter of 2010.

Analysts on average had forecast full-year earnings of $2.69, excluding one-time items.

The company said it did expect sales and earnings to increase in 2011.

Hasbro shares were down 5.4 percent at $42.25 in premarket trading on Friday. Rival Mattel Inc fell 1.6 percent to $23.67.

(Additional reporting by Viraj Nair in Bangalore and Jessica Wohl in Chicago)