Dawson International, the spinner and cashmere supplier, saw sales fall 9.3% to £92.6 million for the year ended December 29 after sales slowed in the second half.
However Dawson International's pre-tax losses narrowed from £3.7m to £1.6m over the period.
Increased costs of raw materials hit Dawson International's spinning division but its knitwear division remained steady.
Dawson International chief executive Andy Bartmess said: "Dawson International's financial performance during the past year can only be described as deeply disappointing. However, these financial results mask real progress in key areas of the business, which the board believes will strengthen its position and lay a foundation for improved future performance."
Bartmess added: "Each division has made a positive start to trading in 2008. In particular, the year to date results of the spinning and home furnishings divisions are both much improved compared with 2007. This is due to excellent progress made in these divisions during the year and also, in the case of the spinning division, reflects more favourable exchange rates. Given stable market conditions in the second half, it is possible that we could see each of Dawson's operating divisions deliver a positive operating profit in 2008. The focus will remain on returning the group to sustainable profit with each business contributing an acceptable return on capital employed. The board is conscious of the current volatility in the global economic cycle and will be monitoring market conditions closely."