Chairman Brian Carte said the year ahead promises to be difficult for all retailers.
He added: "Attention to costs and basic trading principles will continue to be the focus for us this year.
"Whilst progress against plan in April is encouraging, the outlook for the six months to September 30 remains uncertain."
Today's publication of its financial results to March 31 2008 show sales increased to £182 million (2007: £176.2 million) and pre-tax profit rose to £2.57 million (2007: £1.44 million) after exceptional credits of £2.77 million, principally from VAT refunds.
However costs of several franchise relocations and lower margins from sales have led to a full year trading loss of £197,000. Last year's trading produced £1.28 million profit
Carte said the first half of the period had seen steady progress, but the second half was impaired by a worsening economy and the developing credit crunch, and had a "significant effect on our margins caused by reducing customer confidence and competitive pressures".
Caffyns has been pursuing its three year recovery plan since the group suffered a devastating hit by the collapse of MG Rover in 2005.