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By
Reuters
Published
Mar 12, 2014
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French Connection posts smaller loss on strong sales in Europe

By
Reuters
Published
Mar 12, 2014

British fashion retailer French Connection Group Plc reported a smaller underlying pretax loss, helped by lower expenses and strong trading in the second half in its largest markets - UK and Europe - helped improve margins.

French Connection SS14 | Source: French Connection

Shares in the company, best known for its FCUK brand of clothes and accessories, fell as much as 6 percent in early trading on the London Stock Exchange.

The company said revenue fell 4 percent in the year ended January 31 due to the closure of non-contributing stores, coupled with lower first-half like-for-like retail sales in the regions.

French Connection last year announced plans to reduce inventory levels, redesign product ranges and increase the flexibility of its buying teams as well as reviewing pricing as part of a plan to restore the fortunes of its retail division.

"The company reduced costs by shutting down 10 non-performing stores and also by keeping a close eye on staff rostering," Chief Executive Stephen Marks told Reuters on Wednesday.

Revenue fell to 189.4 million pounds ($314.93 million)for the year ended January 31 from 197.3 million pounds a year earlier.

The second straight fall in annual revenue overshadowed a reduction in the underlying pretax loss. French Connection has posted losses in five of its last six financial years.

The company also said it would not declare a dividend, choosing instead to use cash reserves to support the turnaround.

"I think given the results that we have achieved here, we are in a good way to achieving that (profitability by 2015), but we'll have to wait and see how this year goes," Marks told Reuters.

Cantor Fitzgerald analyst Freddie George said it would take longer than that for the company to turn in a profit.

"The company ... has to substantially increase its UK sales densities before it is profitable in its own domestic market, which remains a 'big ask' in our view," George said in a note.

Retail revenue fell 4.8 percent to 117.5 million pounds due to shorter summer and Christmas sale periods, the company said.

The company delayed its Christmas sale by one week, offering between 30 percent and 60 percent reduction in prices.

The North American retail business was also hurt by a tough economic environment, extreme weather conditions towards the end of the year and the closure of one store.

Revenue from the company's wholesale operations fell 2.7 percent to 71.9 million pounds.

LOSS NARROWS

The company reported a smaller underlying pretax loss, helped by lower expenses and stronger trading in the second half of the year.

Underlying pretax loss narrowed to 4.4 million pounds from a loss of 7.2 million pounds a year earlier.

Group operating expenses fell by 6.9 percent.

French Connection said it benefited as its retail division reduced operating losses by 3.8 million pounds over the year.

The retailer - which operates retail and wholesale businesses in the UK, Europe, United States, Canada, Hong Kong and China - expects to close three to five more stores this year, Marks added.

French Connection said total revenue in the second-half was 1.8 percent lower than a year earlier, an improvement from the first-half, when it fell 6.4 percent from the comparative period.

Like-for-like sales in UK and Europe rose 1.4 percent, compared with a fall of 4.5 percent a year earlier.

E-commerce sales grew in the year by 8.1 percent, accounting for 20 percent of total group retail sales.

Along with the French Connection brand - which accounts for almost 90 percent of revenue - the company operates wholesale-only ladies-wear range Great Plains, e-commerce fashion and homewares brand Toast, and men's and women's wear brand YMC.

Shares in the London-based company were trading down about 1.6 percent at 62.00 pence at 1115 GMT.

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