Warning rocks shares in Country Casuals

Country Casuals, the womenswear retailer, was looking distinctly frayed at the edges yesterday when it issued a profits warning just a month after disappointing first-half figures.

The company warned investors that this year's profit would be "materially below" forecasts and said it would not be recommending the payment of a final dividend.

Country Casual's shares plunged 36p to 64p on the news, their lowest point since the company came to the market in 1992, fuelling speculation that it could again become a takeover target. It is only a year since Country Casuals successfully fought off a pounds 27m bid from former chief executive John Shannon which valued the group at 140p per share.

Management blamed the latest setback on a "significant deterioration" in trading since its interim results in October. Full-year profits will now be "not less" than pounds 1m compared with previous forecasts of pounds 2.4m.

While the core Country Casuals stores have reported strong trading in recent weeks, Elvi, the new chain aimed at larger women, has not been able to sustain the year-on-year growth of the first half. Lerose Manufacturing, the troublesome garment manufacturing subsidiary, continues to rack up monthly losses.

Mark Bunce, chief executive, said: "I feel this is a short-term issue. We've got a core business [Country Casuals] that made profits of pounds 3.5m last year. The problem is we have a start-up business [Elvi] and a manufacturing division that are dragging that down at the moment." Mr Bunce said Elvi needed to grow sales to move into profitability. While like-for-like sales increases were running at 24 per cent in October, they have since slowed to 10-15 per cent. Elvi has grow to a 56 strong chain since its formation three years ago.