LONDON, England - British luxury fashion group Mulberry warned its annual profit would be substantially below market forecasts after heavy Christmas discounting in Britain and weak demand in Korea hit sales.

The Bayswater and Alexa handbags maker said on Wednesday total retail sales for the 17 weeks to Jan. 25 were down 3 percent on a year ago, which included a 7 percent decline for the crucial 8 weeks to Jan. 25 Christmas period.

"Due to tough trading conditions over the Christmas period which saw significant discounting across the market, Mulberry has experienced lower than expected UK retail sales which, together with wholesale order cancellations from Korea, will adversely impact our profit this year," Mulberry Chief Executive Bruno Guillon said in a statement.

The warning will come as a blow to Guillon, who has embarked on a drive to increase the company's profile overseas, targeting affluent Asian shoppers with new stores in key tourist spots and hiking prices to take its brand more upmarket from a traditional position of "affordable luxury".

Mulberry, which made around 65 percent of its revenue in the UK in 2013, joins British retailers Debenhams and Mothercare in warning on profits due to the impact of fierce discounting in the sector across the Christmas period.

Adding to a tough UK, Mulberry said that significant order cancellations from Korean customers meant it expected full-year wholesale sales to be 10 percent down on a year ago.

That fall would wipe out retail sales growth over the year, the firm said, and when combined with the costs associated with its recent store opening programme, would mean full-year profits coming in "substantially below" forecasts.

Analysts had been expecting Mulberry to post a pretax profit of 26.9 million pounds ($44.61 million) for the full year to the end of March, according to Reuters data.