Founder and chief executive Stephen Marks described conditions as the worst he has known, adding that he would take action to revitalise the UK operation.
He said it was increasingly difficult for the chain, which has been on the UK high street for 40 years, to maintain its full-price stance as it has done previously.
With higher cotton prices also squeezing margins, the full-year loss at the UK and Europe retail arm widened from £1.6 million a year earlier, reflecting a sharp downturn in trading over autumn and winter.
Better trading through wholesale channels and its licensing business meant overall group profits were £5m in the year to 31 January, compared with £7.3m previously.
Marks said the economic situation hampered trading but admitted its UK retail performance was “very disappointing” in comparison with other retailers.
He added: “We are very aware that there will be no quick solutions and that changes we make will take time to have an impact.
“We are working very hard on improving the performance of the retail stores, although clearly the state of the UK economy is not helping the position.”
New projects include a range of premium womenswear for the spring season which is exclusive to its stores and the internet. It will also broaden its branded offer to include homewares in its larger stores and online.
The company also warned that it will reduce the size of its portfolio if stores are uneconomic and landlords are not willing to lower rents.