However, the shares rose 15 per cent to 22.5p after Tie Rack said Nigel McGinley was returning as chief executive with immediate effect. Mr McGinley stepped down from the top job in October 1997 and has since been serving as a non-executive director.
His return follows a boardroom clear out which has seen the two joint managing directors leave last year. "I've got my chief executive back and I'm very pleased," said Roy Bishko, Tie Rack's chairman who founded the business in 1981.
Tie Rack blamed the latest warning on poor second-half sales and difficult trading conditions in its major markets. After merchandising problems last year the stores were left with an excess of unwanted stock, which had to be offloaded at lower margins.
However, the group was upbeat about prospects saying it had cleared its overstocked position and had net cash of pounds 11m.
With Tie Rack's market value only standing at pounds 15m there have been rumours that Mr Bishko might seek to take the business private. "I have no such plans," he said. "We are just concentrating on running the business. We've got a good young team here and Nigel coming back means he will help bring it all together. I am very excited."
Mr Bishko said he would be "taking some of the clutter" out of Tie Rack's stores, which were crammed with too much stock. It is also adding more woven ties to complement its existing printed ranges.
Management has been strengthened in key areas including buying, merchandising and marketing and the benefits of these changes will begin to be seen in the coming financial year, Mr Bishko said.
Tie Rack has been closing underperfoming stores. It now has 431 outlets worldwide, with 154 in the UK.