French Connection makes progress but times are still tough, US improves
It was a mixed set of results for French connection on Tuesday as the struggling fashion retailer reported preliminary figures for the year to January 31 (FY 2019). The company hailed progress in some areas, but it still has a lot of work to do and certain key metrics remained negative with its operating loss almost tripling from £3.8m to £9.3m.
And it had no news on its strategic review that might or might not include a sale of the company. Last October it said it had started “preliminary discussions with several interested parties.” These talks are ongoing and we should get some news during the current half-year.
Now to those results. The headline figures included a “return to profitability” even though that operating profit widened. It made an underlying operating profit of only £0.1m, so the company isn't out of the woods yet. But compared to an equivalent underlying loss of £2.1m a year ago, it was good news and was the first gain for seven years.
Also encouraging was wholesale revenue rising 10.3% (13.2% currency-neutral) as UK/Europe and North American department stores seemed to discover a renewed appetite for the label.
But before we get too carried away, such positive news has to be balanced against the fact that higher wholesale turnover had an impact on margins and the composite gross margin dipped to 42.3% from 42.7%.
Other negatives included a 6.8% drop in like-for-like sales due to the tough UK conditions. And that was one figure that was worse than a year ago as sales on this basis fell only 0.8% in FY 2018.
The company continued its efforts to conserve cash and focus on its profitable operations and said it closed another 10 stores during the year, with only one store and one concession opened. And having sold the Toast brand in April, it got a cash boost of £11.7m, but that was offset by other costs.
As we said, a mixed bag. Looking more deeply at the overall figures, we can see that total group revenue edged up in the latest year by only 0.2% to £135.3m. And retail revenue fell 10.6% to £58.4m. Gross margins increased 1% to 55.1%, helped by slightly lower markdowns.
More worrying was the fact that, as mentioned earlier, like-for-like sales dropped by almost 7%, underlining how hard it is to mount a comeback in the weakest retail environment for decades.
At least that environment is helping it on the store rental front. It’s finding it easier to get rent concessions so some stores it had planned to close remain open, although its medium-term aim is to quit any location that isn't sufficiently paying its way.
E-TAIL AND INTERNATIONAL
Also of concern was the lack of progress in e-tail. Within retail, revenue for e-commerce was “slightly down on last year, reflecting the general trading environment but also impacted by a high turnover of staff within this area.” But the company said it has recruited a new senior team, is starting to see the benefits of this and will continue to invest in digital this year.
It's fortunate that the company isn't only dependent on the UK. It talked up its progress in the US saying, as mentioned, that it continued to see good growth in the wholesale business there, “with department stores performing very strongly, driven by strong consumer demand.” Bloomingdales and Nordstrom “saw a significantly improved sell-through and increased volumes.”
Company chief Stephen Marks stayed upbeat, hailing the return to profitability and adding that while “this is only part of our overall journey, it represents a significant achievement given the results over recent years.”
He said it would be tough to do well given the impending EU exit and the effect this is having on consumers, but “reaction to both the Summer and Winter 19 collections has been good and orders in North America have continued to be very strong again this year.”
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