Clothing retailer Monsoon said tough trading conditions had left it with a glut of stock at the start of its winter sale.
Monsoon, which also owns Accessorize, reported a five per cent increase in like-forlike sales for the six weeks to January 7 but said this was a result of "significantly higher than planned" stock levels in the sale.
It came as the firm posted an eight per cent jump in pretax profits before exceptional items to £30.1 million for the six months to November 26.
Chairman Peter Simon, who is in talks to buy the 24.6 per cent stake he and his family do not own, said in July that the outlook was uncertain and predicted a lack of consumer confidence in the high street.
He said yesterday: "This underestimated the very difficult trading conditions that ensued through the autumn season when we experienced a decline in like-for-like sales until Christmas."
Same-store sales were four per cent higher during the first half. However, total sales rose 35 per cent to £228.1 million when including the impact of 47 new stores acquired from retailer Etam.
Monsoon was one of the leading lights of the retail sector early last year as teenagers and young women continued to spend on fashion despite cutting back else-where. However, a slowdown in sales over the summer proved it was not immune to the tough conditions experienced by many of its rivals.
The firm boosted its trading space by 30 per cent when it bought the former Etam sites in April. This increased the number of Monsoon and Accessorize outlets in the UK and Ireland to 388 by the end of the period - including 151 Accessorize stores, 141 Monsoon sites and 92 including both brands.
Monsoon revealed in the summer that founder and chairman Mr Simon was in talks about a possible bid to take the company private.
It said there had been no further developments on this, adding that it was unable to give more guidance on full year prospects since it was in an offer period.
It appears that Mr Simon is no nearer to launching an offer than he was last year and that a deterioration in trading has made a full-blown valuation of the company difficult.
"We don't know whether he will take his proposal forward or not," a spokesman for Monsoon said.
Analysts reckon that Mr Simon is unlikely to pay more than 400 pence a share for the outstanding equity, the majority of which is owned by three hedge funds. Polygon Investment Partners, the US hedge fund specialist that was behind the recent Peacock Group buyout, is one of the funds involved.
Retail analyst Richard Ratner of stockbrokers Seymour Pierce said the group's current stock position inferred that margins would come under pressure as old stock is cleared through the second half.
He is provisionally cutting his year to May 2006 profits forecast from £70 million to £63 million. He also points out that a sharp increase in capital expenditure and working capital have depleted the group's cash position - it had a deficit of £6.4 million at the end of November, compared to net funds of £53.7 million a year ago.
Monsoon also has 299 stores in 35 countries including Australia, Brazil, Denmark and France. International operating profits increased by 95 per cent to £5.8 million while turnover doubled to £26 million. ..SUPL: