The company's "Holiday Sweater" ornament is adorned with traditional Christmas lyrics from the "Deck the Halls" song.
The colorful sweater, however, says "Don we now our fun apparel" instead of "Don we now our gay apparel."
A spokeswoman for Hallmark said the company's holiday ornaments are created in the spirt of fun.
"When the lyrics to "Deck the Halls" were translated from Gaelic and published in English back in the 1800s, the word "gay" meant festive or merry. Today it has multiple meanings, which we thought could leave our intent open to misinterpretation," the statement read.
"The trend of wearing festively decorated Christmas sweaters to parties is all about fun, and this ornament is intended to play into that, so the planning team decided to say what we meant: fun. That's the spirit we intended and the spirit in which we hope ornament buyers will take it."