A 17% fall in first half revenues prompted Mulberry to issue a profits warning, sending its share price tumbling 25% in early trading.
The British luxury bag maker said in a trading update that full-year pre-tax profit would be "significantly below expectations" after sales slumped in the six months to 30 September - a time the firm had dedicated to an overhaul of its offering.
Mulberry had warned in June of a tough year ahead as it shifts to a lower price strategy following an ill-fated attempt to move upmarket that hit sales and led to chief executive Bruno Guillon's exit in March.
Mulberry admitted tougher than expected trading conditions had added to its woes, with falling levels of tourist shoppers hurting its core UK business.
Revenues for the six months fell 17% to £64.7m - with retail sales down 9% and wholesale sales 31% lower.
The results were in stark contrast to another rival luxury brand, Burberry, which confirmed strong sales growth over the same period but its shares also fell on fears over the weak global economic recovery.
Mulberry, like rivals Louis Vuitton and Gucci, is struggling to compete against more accessible, trendy fashion brands such as Michael Kors which give customers the look and feel of luxury at a fraction of the price.
To better compete, the firm is strengthening its product offering at a price range of £500-£800.
Mulberry said sales trends had improved over the first half, indicating it was taking the right steps to restore the business to growth.
But the firm added that its flagship Paris store, due to be opened early next year, would mark the end of its investment in new
stores, which has seen it expand its footprint globally.
Executive chairman Godfrey Davis said: "As I explained in June, my first actions on returning as acting chief executive focused upon reinforcing our product ranges.
"I explained that the impact would be progressive and should produce benefits over the medium term.
"The new products are beginning to reach our shops with the launch of the Cara Delevingne bags at the beginning of September and with further new products being offered in our shops during November.
"As expected, the first half has been difficult, but the Group remains profitable and cash generative, giving us the resources to invest for the future.
"Despite the current challenges, I remain confident that we will build on Mulberry's solid foundations and unique brand positioning in the luxury market to restore growth in the medium term."
The Mulberry share price later recovered some of the early lost ground - down just over 9% by mid-afternoon.
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