Bookshop Ottakar's yesterday warned of continued softness on the high street as stiff competition from the internet and supermarkets saw it slip into the red last year.
Ottakar's - a bid target of Waterstone's owner HMV - said like-for-like sales at its 141 bookshops were down more than eight per cent in the eight weeks to last Saturday.
It followed a fall in like-for-like sales of nearly three per cent in the year to January 28 which saw it make pretax losses of £4.6 million compared with profits of £6.9 million a year earlier.
Ottakar's blamed increased competition from online book-shops such as Amazon.com and supermarkets which slashed prices of key publications such as Harry Potter and the Half Blood Prince.
The company said the "unprecedented price competition" came at the same time as "intense corporate activity" as a management buy-out offer was trumped by a higher one from HMV, which is now being examined by the Competition Commission.
Ottakar's chairman Philip Dunne said: "The distraction of the corporate activity and the slowdown in second half sales have combined to make 2005 a difficult year for Ottakar's."
Mr Dunne pointed to the need for the company to maintain its margins.
He added: "The start to the year has seen continued soft-ness on the high street, with market growth being absorbed by both supermarkets and internet channels."
The board was now considering the launch of its own website to sell books, as well as opening an extra four shops on top of the ten it added last year.
Ottakar's was hit by a number of exceptional costs last year, including £2.1 million in connection with the takeover bids and subsequent regulatory investigation.
Before exceptional items and one-off costs, Ottakar's made pretax profits of £2.6 million. The firm said it was not prepared to enter a price war with supermarkets and high street rivals because it did not have the scale to promote such a move through an advertising campaign.
"All we would be doing is giving money away to those who are in the shops anyway," said finance director Michael Hitchcock.
He said the company had reduced costs through scaling back part-time staff but added there were no plans for job cuts to its 2,500 permanent employees.
And he predicted business to pick-up as consumer confidence returned.
Mr Hitchcock said: "Specialist booksellers will always be able to show their quality -their depth of range, quality of service, and their passionate and knowledgeable staff.
"Once consumers begin to feel a bit better and put their hands back in their pockets they will come back.
"And the more people buy books from a supermarket, the more they may want to extend their range of reading and come to bookshops."
The company is currently valued at an estimated £71.8 million - far less than the 440p a share offered by HMV which valued Ottakar's at £96.4 million.
The Competition Commission is due to announce its preliminary findings this week.
Retail expert Richard Ratner, of Seymour Pierce, said he was now expecting the Commission to rule in favour of a merger.