JEWELLER Abbeycrest said its recovery programme has been derailed by high precious metals prices and tough markets.
The Leeds-based group last month issued a profits warning and said it had breached covenants with its senior lender, Burdale Financial.
Yesterday the group said trading since September 1 has forced it to cut costs and streamline. However, it said stronger management and better systems should put it back on track.
Shares in Abbeycrest closed yesterday up 0.25p at 3.75p.
"The group's ongoing recovery programme was adversely affected during the period by increasing precious metal costs and competitive market conditions," it said.
The group, which designs and makes jewellery for retailers including Argos, Goldsmiths and Asda, said profits at its Brown & Newirth wedding ring brand have been "materially affected", and are behind the group profits warning and covenant breach.
Abbeycrest said it has made significant changes to systems, controls and management at B&N to tackle product pricing and margin control, as well as brand development.
Abbeycrest added it has slashed B&N's cost base, resulting in hefty exceptional costs. The group did not say whether job cuts are included in this streamlining, and could not be reached for further comment yesterday.
The jeweller said since cutting costs, the division's latest monthly performance indicators are back in line with management expectations.
"Together with the strengthening of B&N's management team and the changes made to the company's systems and controls, the board believes that the division's trading performance is now well placed to return to previous levels," said the group.
The price of gold has surged in recent months as investors seek a safe haven away from the turmoil of currency markets.
Abbeycrest said its Essentials division "continues to adapt to the challenges posed by changing market conditions and precious metal prices".
Abbeycrest recently established a central management structure, responsible for all operating sections across the Essentials division.
This is improving cooperation between sourcing and manufacturing, and promoting a more co-ordinated approach to product design and customer account management, it said.
Abbeycrest added talks with Burdale Financial Ltd, a subsidiary of the Bank of Ireland, continue over the covenant breaches and the lender remains "supportive".
Abbeycrest recently revealed plans to expand its branded jewellery operations by opening a handful of shops in the north.
It plans to open up to a dozen shops in independent shopping areas such as Leeds's Queens Arcade and Harrogate, to speed up its transition from mass market to the higher-margin branded sector.
The new stores, which are likely to be called Osare, will target affluent consumers in upmarket areas more resilient to the downturn. Osare, its male jewellery range, draws on architecture, Italian heritage, sport and the car industry.
Abbeycrest insists it does not intend to become a retailer, but said the flagship shops will build its brands' reputation and presence.
It aims to use the stores to get close to the market and understand the reaction.
Executive chairman Simon Ashton, who was appointed in 2008 to rescue the group, has overhauled its board and shifted its strategy away from pure volume to target higher-margin business.
Under a programme called 'Straight Edge', Mr Ashton has streamlined the group's operations, including shifting manufacturing and much of its distribution to Thailand.
That included shrinking the group's Leeds facility from 160 people to about 18, switching to hold the bulk of its stock in Asia. It now supplies Argos direct from the Thai factory.
The group launched its branded arm from scratch in 2008. Since then it has grown branded turnover to a last reported figure of more than 750,000.
However, the branded division's growth has been slower than it hoped. Mr Ashton has previously insisted: "You don't go from the mass market into the higher end design-led area of the market overnight."
Abbeycrest was established in 1979 by Michael Lever and Peter Rosenberg, and grew rapidly to become the UK's leading supplier of gold products to the jewellery trade.
In 1985, it joined the Unlisted Securities Market, achieving a full listing in 1988.
In 1989, Abbeycrest moved into gemset jewellery with the acquisition of a Birmingham-based manufacturer, Gallery Jewellers.
New creative director named
Abbeycrest has appointed former creative director of international jewellery brand Hot Diamonds Group as its new creative director.
Julie Large will revamp the group's branded division, including its Brown & Newirth wedding and commitment jewellery business.
Abbeycrest chairman Simon Ashton said: "With a sound knowledge of commercial design and UK retail jewellery trends, she is the perfect choice to lead Abbeycrest in a new direction for 2011."
"I am excited by my new role at Abbeycrest," said Ms Large. "The group needs to have a new creative direction and I am confident that I can deliver some fresh and very commercial collections which will be unveiled over the next few months."