Struggling discount clothing retailer Matalan predicted no let-up in tough high street trading conditions as it revealed that pre-tax profits at its half-year stage had plunged by more than a quarter.

As he echoed the plight of many of his peers in the retail sector, John King, Matalan's chief executive, said: "Trading conditions continue to be difficult, and there is little evidence that this will improve in the near term."

The shares lost 10.75p in early deals, falling more than 6.5 per cent to 154.25p.

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The group, which at the beginning of the year embarked on an efficiency drive aimed at stemming its declining sales, reported that pre-tax profits for the six months to the end of August slumped to £30.7 million, a near 28 per cent slide on the £42.5 million delivered last time.

Underlying sales slid by 6.3 per cent during the period compared with a 4.3 per cent rise in comparative sales in the same six months last year.

But, adding to the first-half profits woes, Matalan warned that trading since its half-way mark had worsened, with total like-for-like sales sliding by 10.6 per cent during the nine-weeks to the end of October. Last year over the same trading period, like-for-like sales gained 4.6 per cent.

Matalan said that its 4.6 per cent fall in "core" underlying clothes sales - based on 169 stores - reflected "not just the continuation of a difficult trading environment but also slower sales of winter products such as coats and knitwear. Conversely, sales of products of t-shirts continue strongly."

The retailer added: "The performance of home [items] has continued the poor trend of the first half, and in fact has worsened in these early season weeks where seasonal product, for example Christmas gifts, has seen slower uptake than last year."

Shares in Matalan, which have slipped from a high of 400p three years ago to a close last night of 165p, currently value the FTSE 250 retailer at just under £690 million.

Despite the profits fall, Matalan is holding its interim dividend at 2.9p a share and pressing ahead with a share buyback programme that should total £25 million by the end of its financial year.

And Mr King said Matalan was making progress with its efforts to improve cashflows and restore profit margins.

"Against this background, our business agenda will continue to focus on improving profitability and strengthening cashflows. A combination of these initiatives helped generate a 1.4 per cent margin uplift in the first half, and this will remain our focus for the second half," he said.

Matalan has cut its retail inventories by £14 million and made "satisfactory" clearances of its spring and summer clothing ranges. It has refurbished 18 stores as part of its renewal programme and will complete a further 17 stores by the end of its financial year in January. The 18 refurbished stores have met Matalan's requirement that sales increase by a minumum of 5 per cent.

The company also reported that it had completed a review of its cost base and aimed to generate annual savings of up to £15 million.

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