Fashion group French Connection today warned the tougher high street conditions facing retailers would hamper a business revival this year.
The group said its performance was "clearly not good enough" after pre-tax profits fell 22% to £3.1 million in 2007. It added: "The continuing difficult economic environment predicted for the new year is likely to have an impact on the rate of improvement in our retail business."
Like-for-like UK retail sales were 3% lower as a modest improvement in ladieswear was more than offset by declines in men's fashion.
The French Connection business has struggled in recent years as customers show signs of tiring of its FCUK branding. The "marked softening" in retail conditions seen at the end of 2007 has compounded its problems.
The company said it had overhauled its design teams to improve menswear ranges, but the main impact of this would not be felt until the spring and summer of 2009.
Revenues at the overall UK business were flat at £115.6 million and current trading has been "lacklustre" since the end of the sales period, the group said.
Chairman Stephen Marks added: "While we are targeting to increase sales volumes in the new year, it would appear that the market will make any gains difficult to find."
The company however took some comfort from the recovery of its Toast mail order division, which bounced back from a difficult first half, and has plans to expand the operation with larger warehousing facilities.
Mr Marks added that he was "hopeful" of some growth in French Connection's UK wholesaling business. While orders for spring and summer 2008 are 5% ahead of 2007, the full-year outcome is dependent on forward orders and repeat business for the three coming seasons, "all of which could be affected by the more difficult retail market facing our wholesale customers".
Meanwhile progress made in the US retail business before a dramatic slowdown in November was all but wiped out by a dollar which slipped 8% in 2007, leaving revenues marginally lower at £35.1 million.
The currency weakness also dampened revenues at its US wholesale operation, which grew dollar sales by 10%, translating to just 2% in sterling.