Arcadia's underlying pre-tax profits slumped to £26.7m in the six months to February, down from £50m in the same period of the previous year.

Intense competition on the high street has already forced it to cut prices in its spring collections - and the group warned of challenging times ahead.

Profits warning

City analysts had predicted the slump in earnings. Arcadia, which also owns the Dorothy Perkins and Principles chains, stunned the stock market in January when it warned of disappointing profits.

However, the UK's second largest clothing retailer, held out some hope for a recovery on the high street by revealing that sales in recent weeks were ahead of the previous year.

Total sales edged up from £775m to £780m in the six months to February.

One area of significant growth for the company is the Internet - with over 90,000 new names added to the group's home shopping database and sales rising to £500,000. It expects to generate over £1m of Internet sales during its current financial year.