Laura Ashley issued a profit warning yesterday as fierce price-cutting and the slump in the pound took their toll on margins.

The fashion and home furnishings retailer, famous for its floral prints, reported that like-for-like sales had fallen by 6.2 per cent for the financial year ending January 31, while profit before tax will be about £9 million, well below market expectations of £16 million.

The company was forced to reduce prices, eroding margins as it followed other fashion and furniture retailers that were desperate to shift stock. Like-for-like sales surpassed expectations and outperformed declines in the home furnishings sector, largely because of promotions, but Nick Coulter, a Numis analyst, estimated that promotional activity had cost the company five percentage points in margins in the second half.

Total sales rose by 10.8 per cent as it added 20 stores during the year, bringing its total outlets in Britain to 228, while internet sales rose by 65.4 per cent. The increase in online sales was partly offset by a fall in mail orders.

The group is controlled by Khoo Kay Peng, the Malaysian chairman of the company, who has been increasing his stake in recent months. Dr Peng, and funds controlled by him, own about 80 per cent of the stock. Shares in the company fell ½p, or 4.5 per cent, to 10½p.

As well as facing tough trading, Laura Ashley has suffered a paper loss of about £30 million on its stake in Moss Bros. It built up a 10 per cent stake between December 2007 and June last year and helped to repel the advances of Baugur, the Icelandic retail investor. Since then shares in Moss Bros have lost about 65 per cent.

The company said: “In line with the general economy, we expect the coming year to remain challenging and unpredictable.”

Sir Bernard Ashley, the former chairman who co-founded the company during the postwar years with his wife Laura, died last Saturday, aged 82.

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