Fashion retailer French Connection has reported a smaller full year loss but warned high street conditions were still challenging, knocking back its shares.
The business said its underlying loss improved from £4.4m to £0.8m, although revenues fell 5.8% to £178.5m after nine stores were closed during the year. Retail like for like sales fell 3% but its wholesale business - where it sells to retailers around the world - rose 4.6%. Chairman and chief executive Stephen Marks said:
In spite of difficult trading conditions in the second half of the year, these results show we have made another step towards returning French Connection to profitability.
Although we are encouraged by forward orders in our wholesale business, trading on the high street remains challenging and we are planning accordingly.
The second half saw mild weather discouraging customers from buying winter clothes, and operations director Neil Williams told Reuters:
If we look at the industry data that is coming out, you don’t think there’s a surge in consumer demand going on. It’s certainly not on the fashion high street.
The news has sent French Connection’s shares down 9.5p to 51.5p, although they are off the low of 49.25p. Analyst Freddie George at Cantor Fitzgerald kept his hold recommendation but cut his target price from 65p to 60p. He said:
Final results were broadly in line with market expectations but slightly behind our projections. Encouragingly, they mark the second year of improvement in trading after strategic initiatives were put in place two years ago. However, results were affected by weaker trading in UK/ Europe offset by better than expected wholesaling figures. Like for like sales weakened in the second half affected by the mild weather in September and October, difficult comparatives and going into the ‘Sale’ period after Christmas with too conservative stock levels.
In the current trading statement, the company refers to trading on the high street being challenging but, it remains encouraged on forward orders although the language is more muted than in the November 2014 trading statement.
Following these results, we are reducing our 2016 pre-tax forecast to £0.5m from £2.0m taking earnings per share down to 0.5p from 2.1p predicated on flat sales, flat gross margin and underlying costs declining by 0.5%. We are also making similar revisions to our subsequent year forecasts.
Although the Retail figures were weaker than expected partly due to one off factors, the company’s strategy, in our view, now has traction and losses have been significantly reduced over the last three years. There is more clarity on pricing architecture between the ‘good, better and best’ ranges particularly in womenswear, the accessories assortment has been strengthened, there is a better focus on the ‘best sellers’ and there has rightly been a drive to reduce markdown activity. The company also has a number of valuable brands including Toast, Great Plains and YMC, which contribute 14% of group revenues. In addition, it has a relatively strong balance sheet with group cash forecast at over £20m at January 2016.
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