The returning co-founder of Superdry has said it will take up to two years to fix the struggling British fashion group after it slumped to an £85.4m annual loss.

Julian Dunkerton is now the interim chief executive, as well as the group’s largest shareholder after winning a bitter battle to rejoin the board in April, prompting the resignation of all its directors. He said its performance in the new financial year would “reflect market conditions and the [historical] issues inherited”, with sales likely to fall.

“This is an aggressive turnaround. This year is a year of stability with small moves forward but in 12 to 24 months you will see much more progress,” Dunkerton said.

Shares dropped more than 4% on Wednesday after Superdry reported a pre-tax loss of £85.4m for the year to 27 April, compared to profits of £65.3m a year before, after a charge of nearly £130m on onerous leases at 114 underperforming stores. Sales were flat, at £872m, and underlying pre-tax profits slid 57% to £41.9m – at the bottom of the range of analysts’ forecasts, which have been cut after a series of warnings.

Dunkerton has ditched a planned kidswear range, redesigned or dropped products and improved Superdry’s online store and discount outlets since returning to the business. He has increased stock in the London flagship store by more than 40% and cut promotions to improve profit margins.

“The issues in the business will not be resolved overnight,” Dunkerton said. “Although we are only three months in, our initiatives are gaining some early traction and I am confident we are doing the right things to ensure that over time Superdry will return to strong profitable growth.”

He said it was too early to say how long he would remain as the interim chief executive but he would always be involved in the business. “I care passionately about this business and my only focus is on getting stability, getting the product right, the strategy right going forward and a new level of positivity,” he said.

The chairman, Peter Williams, who joined the company when Dunkerton was voted back on to the board earlier this year, said headhunters had been appointed to look for a new chief executive but appointing someone was a long-term aim.

“It is really important that whoever comes in has to work very closely with Julian,” he said.

Williams said rumours that he had fallen out with Dunkerton were “mischief making” by some of the employees who had left in recent months.