The contractor is suffering the knock-on effect of the downturn ravaging high streets across the UK.
ISG said a number of major food and high street banking clients have put work on hold which will hit predicted profits by £3m.
The firm said: “Since our last trading update in November 2011, UK trading conditions have further deteriorated.
“As a result we have seen a number of our key clients in the UK food retail and retail banking sectors reassess their strategies, which has led to the cancelling or deferring of projects due to be undertaken in the second half of our financial year.
“With the reduced volumes and continuing pressure on margins, this is likely to result in our UK retail businesses delivering profits £3m less than we had anticipated.”
ISG said the London fit out and UK construction businesses continue to trade in line with expectations, despite “relentless pressure on margins.”
The profit warning sent ISG’s share price tumbling nearly 20% in early trading this morning.
Chief executive David Lawther said ISG was still committed to the UK retail market but would continue with its strategy of looking for growth overseas.
He said: “While we maintain our market leading positions in UK retail and fit out, we will continue to diversify the Group’s earnings base away from the UK and expect our overseas businesses to contribute circa 35% of Group trading operating profits in the current year.
“We continue to pursue overseas organic and acquisition opportunities that will provide us with wider service lines, emerging market positions and scale in key developed markets.
“Last year we acquired a design & build capability in China and organically started up a retail fit out operation in Europe.
“The acquisition of Alpha International, a retail design and fit out specialist based in Paris completed in October 2011, has enhanced our organic offering.
“In addition in this calendar year we are investing in start up operations in Qatar and in Johannesburg to service the Southern African region.”