Clothing retailer Monsoon is embarking on a cost-cutting review after exhausting its cash reserves amid a major store expansion drive.
Monsoon chairman Peter Simon said the past year had been the most challenging in the company's history after the purchase of 43 Etam stores turned out to be more complex than anticipated.
In a statement Mr Simon yesterday said: "It proved more complex to integrate these stores than anticipated and, with tough trading conditions, this has had an inevitable impact on our historically good margins.
"During the financial year we invested a total of £75.5 million, which has exhausted the group's cash reserves and has resulted in the company taking on debt for the first time in over 30 years."
He added that he had become increasingly concerned about the company's exposure to more volatile revenue streams outside Britain and that he was looking at ways to "de-risk" the business.
In the past year the group - which as 14 Monsoon and 13 Accessorize stores in the West Midlands - has signed new franchise agreements in Belgium, Finland, Ukraine, Azerbaijan, Slovakia, Croatia and South Korea.
It has also established wholly owned businesses in France, Japan and a nontrading arm in Germany in addition to its existing subsidiary business in Russia.
Mr Simon's comments came alongside the group's year results showing a two per cent fall in pretax profit before exceptional items in the year to May 27 to £57.99 million.
This was despite a 33 per cent rise in group sales to £485.3 million.
The company said group like-for-like sales were level with last year.
But it said its like-for-like sales in the seven weeks since the year's end had fallen seven per cent. Total sales were up 24 per cent.
The company has opened 61 stores in the UK and Ireland this year - including the converted Etam stores - and 117 internationally.
For the current year the retailer has reduced capital expenditure on stores to "a nominal amount".
However, it is committed to a new 230,000 sq ft distribution centre and a purpose built 160,000 sq ft head office in Notting Hill for occupation in 2008.
"Priorities in the year ahead will be to improve our returns in line with our increased scale which will also involve removing costs out of the business," said Mr Simon.
"With this in mind, we are currently conducting a thorough review of all our businesses and departments."
In March, Mr Simon gave up on his eight-month attempt to buy out the 24.6 per cent of Monsoon's shares not already owned by his family.