French Connection has fallen back following Friday's late news it plans to close all of its 21 stores in Japan.
The move - which will take place over the next six to nine months - follows continuing hefty losses in the country (a deficit of £2.5m is forecast by the company for the year to January 2010.) The company plans to seek a licensee to keep the brand going in Japan.
The retailer's shares are down 1p to 45.5p, and there are mixed views in the City. Analyst David Stoddart at house broker Altium has upgraded from hold to buy on the news. He said:
On an ongoing basis we expected the Japan business to lose £2.7m in the full year, having incurred a loss of £1.7m in the first half. Our forecasts for 2011 and beyond increase by the £2.7m that we expected Japan to lose. This has
pushed our discounted cash flow-derived target price up to 70p. We therefore upgrade from hold to buy.
But Seymour Pierce is harsher, issuing a sell recommendation. Analyst Kate Heseltine said:
The recent, and reasonably dire, set of interim results appear to have spurred management into action with, much required in our view, restructuring plans to reduce future losses.
Although [the Japanese move] is an encouraging early step to stem losses, which we forecast at £15m for 2010, we are reiterating our negative stance on the stock. The share price has declined around 20% since the middle of September but remains overvalued, in our view, in light of the losses.
