French Connection narrows losses as the turnaround nears completion

Catherine Neilan
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French Connection: Within spitting distance of making a profit (Source: French Connection)

French Connection has narrowed its full-year losses once again – but still failed to nudge into the black.

The figures

Group revenue fell 5.8 per cent to £178.5m for the year to January 31.
However, French Connection shut nine underperforming (“non-contributing”) stores, brought more of its costs under control and made “some margin progression” in its retail business, meaning the bottom line looked relatively improved.
French Connection's wholesale and licensing divisions also performed strongly.
The company is now within spitting difference of making a profit: losses were £800,000 for the year, down from a loss of £4.4m last year, which was in line with market expectations.
However composite gross margins have dropped from 47.6 per cent to 46.7 per cent, “reflecting the higher mix of wholesale sales within group revenue”.

Why it's interesting

Having ridden high during the FCUK era, the company went through a sustained period of underperformance amid complaints about quality and widespread discounting.
Once the darling of the premium high street, French Connection was forced to embark on a turnaround programme around 18 months ago.
With a new team in place, quality and design have got back on track and the view is that French Connection can – and is – clawing it back.

What French Connection said:

Chairman and chief executive Stephen Marks was cautiously optimistic, noting in his letter to shareholders that he was "disappointed" with retail performance in the second half, but was much happier when it came to wholesale and licencing.
“In spite of difficult retail trading conditions in the second half of the year, these results show that we have made another step towards returning French Connection to profitability,” he said.
“The performance of our wholesale and licensing operations were both encouraging, supported by the continued strength of the French Connection brand worldwide. We have also maintained a tight control of costs and have continued to close loss-making stores.
“Although we are encouraged by forward orders in our wholesale business, trading on the high street remains challenging and we are planning accordingly.”

In short

Although the turnaround has been a slow process, there are definite signs that the retailer is back on track and the fact it has been picked up by the fashion glossies is doing much to improve its reputation as a premium brand.
It hasn't helped that the high street has been under so much pressure, but with good growth in its wholesale arm, French Connection is becoming less exposed to the direct stresses of retail life.

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