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French Connection recovery continues, review to complete by year-end

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today Sep 17, 2019
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French Connection’s half-year results on Tuesday showed it “building on good progress” and “on track to meet expectations”, but that still didn’t mean the company is where it would like to be just yet.


French Connection


The company also said that its strategic review would be complete before year-end and that talks with interested parties are ongoing.

It remains loss-making and the period to the end of July saw group revenue of £51m, which was down 12.2% (or a worse 14% currency-neutral). To be fair, much of this was linked to its ongoing store closures (it shut seven in the period and opened only one), as well as a shift in timing of wholesale shipments into the second half.

There was good news on French Connection’s UK/Europe combined store and e-commerce like-for-like sales as they rose 1.4%, after many periods of declining like-for-likes (this time last year they were down 7%, for instance). That’s definitely a bright spot, especially given what the company admitted was a “difficult trading environment”, and the fact that e-tail revenue reduced slightly means the remaining store portfolio’s like-for-like performance was even better.

But declining e-tail is never a good admission to make at a time when most retailers manage to grow their online sales even if their physical spaces are struggling.

French Connection didn’t give an explanation but did say that a new e-tail team is in place "and progress has been made with the site particularly around personalisation of communication, with further customer experience enhancements to be rolled out during the second half to drive engagement and conversion, together with an increased investment in digital marketing spend to drive traffic.”

It expects the impact of this to grow towards the later part of the second half.  “As we further develop the site, the key focus is very much on the experience for mobile users and the activity generated through mobile continues to grow with visits at 63.6% up from 56.4% last year,” it said.

MARGINS AND WHOLESALE

Any more good news? The composite gross margin improved to 42.7% from 41.5% with higher full-price sales in wholesale, although this was partially offset by a larger mix of outlet store sales in retail.

On the wholesale front overall, revenue was down 11.7% to £27.2m, or 14.4% currency-neutral, caused by those later shipments. However, the company said the US wholesale business was strong, citing Bloomingdales and Nordstrom, “where the sell-through was strong again”. And its major customers in the UK “continued to grow their orders overall, despite the general trading conditions, particularly those with online operations, both pureplay and multi-channel”. 

The company saw small growth in its licensing income from £2.6m a year ago to £2.7m this time as its French Connection branded sofas deal with DFS continued to perform strongly, but it saw reduced income from fragrance.

And even with all the progress, it still made an underlying operating loss (pre-IFRS 16 adjustments) of £5.3m, although this was better than the £5.5m in the year-ago period. Its operating loss was £3.7m including IFRS 16 and “onerous lease provision adjustments”.

So what did founder and company chief Stephen Marks think of all this? “I am pleased that the changes we have made to the business over the last few years continue to move us forward,” he said, striking an upbeat note. 

“There is no doubt that progress has not been helped by the trading conditions in which we operate in the UK, although our retail performance has been resilient, overall the wholesale business is strong and we continue to see good stability in licence income.  The order books we have provide a clear outlook for the second half in wholesale but it appears that retail conditions will continue to be challenging.  Underpinned by these results we remain fully on track to achieve our expectations for the financial year.”

That admission that the environment will remain challenging may be a sign that we shouldn’t expect too much to be achieved too soon. But the company does seem to be getting closer to its recovery point, albeit slowly.

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