The European leader in its sector had made a pretax profit of €11.9 million in 2006.
Last year however, it also plunged to a net loss of €13.2 million, from a profit of €10 million one year earlier, after business was "significantly affected by restructuring expenses," the company said in a statement.
"This medicine no doubt tasted a little bitter, but I am convinced that it will make Beate Uhse fit for the future," boss Otto Christian Lindemann was quoted as saying.
He has been reorganizing the group's distribution network, based on stores and mail order sales, which has suffered from a drop in its traditional clientele.
Sales of pornographic movies in particular have been hit by Internet-based competition.
Beate Uhse now wants to attract more women and couples to redesigned stores that sell lingerie and sex toys, and said that a "second shop concept - fun centers located in business parks and at motorway junctions" - would target a predominantly male clientele interested in "erotic entertainment in the form of films and cinemas."
Shares in the company were flat at €1.32 in late Frankfurt trading, while the Xetra index on which it is listed showed a fall of 0.53 percent overall.