Sales fall again at fashion retailer French Connection as it signals modest return to profit
Like-for-like sales fell again at French Connection over 2018 despite posting a modest return to profit in what it called a “tough” retail trading environment.
Read more: French Connection shares rocket as it looks for a buyer
While the struggling retailer saw a return to underlying profit of £0.1m for the year to the end of January, up from a £2.1m loss in 2017-18, its operating loss almost tripled, from £3.8m in 2017 to £9.3m last year.
Meanwhile like-for-like sales slipped, dropping 6.8 per cent due to wider high street challenges, according to French Connection.
Wholesale revenue rose 10.3 per cent year on year to £76.9m for the UK and Europe as well as North America, but retail revenue slumped 10.6 per cent to £58.4m.
That left total group revenue only marginally up – 0.2 per cent higher to £135.3m.
The retailer grew net cash 70.5 per cent year on year to hit £16.2m, and signalled earnings per share of 0.1p, up from a loss per share of 2.7p last year.
However, the struggling business has proposed no dividend for its latest year.
Why it’s interesting
French Connection hailed its marginal return to underlying profit as a “significant achievement”, as the company seeks a buyer.
Strong wholesale demand fuelled the turnaround, offsetting a drop in like-for-like sales.
Emma-Lou Montgomery, associate director from Fidelity Personal Investing’s share dealing service, said the modest profit shows French Connection has finally “joined up the dots”.
“That’s no mean feat in the current climate and the continuing effect of House of Fraser’s slump into administration,” she added. “By the group’s own acknowledgement, its customers’ ‘conservative’ attitude to clothes shopping going forwards is likely to keep the current year’s sales muted.”
However, the retailer posted another loss as a series of one-off costs weighed it down, including “onerous” lease costs of £5.2m, £800,000 related to the collapse of House of Fraser, £900,000 for a store closure programme and £2m to pay the debt of an Indian licensee.
The company simply said “discussions are ongoing with a number of parties” over a potential sale, as founder and chairman Stephen Marks attempts to offload his 42 per cent stake.
“We continue to expect this strategic review (including the formal sale process) to conclude during the first half of 2019 and will make further announcements when appropriate,” said Marks.
“The going concern over its cash forecasts and funding suggests the potential [for a sale] may not have gone away,” Montgomery said.
What French Connection said
“Our initial goal has been to return the Group to profitability which we have now achieved, however we now must intensify our efforts to ensure that we build on the momentum that we have within the business and move to an appropriate level of profitability,” said Marks.
Read more: French Connection founder is reviewing potential sale, company confirms
“It is clear though that the retail market in which we are operating in the UK is unlikely to improve in the near future especially given the uncertainty surrounding our exit from the European Union and the knock on effect that is having on consumer confidence.
“Our performance in wholesale remains strong especially in the USA with reaction to the new collections being very positive. In addition we have new and growing license partners working with us.
“Although we are only early into the new financial year, I believe we are in a very good place and will make further significant progress.”