Fashion retailer French Connection has seen its shares jump nearly 11% after a positive trading update despite the current woes on the high street.
The company said like for like sales in its retail business in the 17 weeks to 22 November had been hit by the unseasonally warm weather - not the first retailer to complain of that - and had fallen 5.7%. But margins improved, helped by a continued focus on full price sales. It closed three stores in the UK but opened two new concessions, and also expanded in Berlin, Amsterdam and Spain.
Wholesale revenues - selling its products to retailers in 60 countries around the world - rose by 9%, and the spring 2015 order book was strong.
The improvement in the wholesale division and in global licence income meant a strong reduction in losses for the period. So it repeated its guidance for the full year outcome. Chairman and chief executive Stephen Marks said:
As widely reported, trading in UK retail has been tough and while we still have the all-important Christmas period to come, I am pleased to report that the overall performance of the group continued to be positive, particularly in UK wholesale and global licensing with continued tight cost control, and we expect the results for the full year to be in line with market expectations.
French Connection has risen 5.5p to 56.5p, although the shares are fairly illiquid with Marks holding nearly 42%.
Analyst Michael Campbell at Northland Capital said:
Despite UK retail impacted by milder weather, the improved wholesale and prudent cost control have helped offset the negative impact and this should be well received. Consensus has a loss of c. £1.6m pencilled in for FY15 an improvement on the c. £6.1m loss before tax in the prior year. Growth in UK/Retail sales would be a catalyst for the share price however the stock looks up to date with events with no reference to growth in this area in our view.
Freddie George at Cantor Fitzgerald also had a hold rating:
Following these results, we are, for the time being, retaining both our 2015 pre-tax forecast of break-even and our 2016 forecast of £2.0m. The company’s strategy, in our view, now has traction particularly in the UK and Europe. There is more clarity on pricing architecture between the ‘good, better and best’ ranges’ particularly in womenswear. The accessories assortment has been strengthened, as there is a better focus on the ‘best sellers’ and there has rightly been a significant reduction in markdown activity. The company also has a number of valuable brands including Toast and Great Plains and has a relatively strong balance sheet with group cash forecast at £30m at January 2015. However, UK/ Europe retail is still expected to be loss making. We are thus for the time being... reducing our target price to 65p from 80p.
But Numis issued a buy note:
We remain positive: In all, we leave our estimates unchanged, with an upgrade to our full year forecast for Wholesale offsetting the weather- affected retail outturn. Encouraged that numbers remain intact despite such a challenging trading period, we retain our positive stance, with clear benefits being seen from the sensible initiatives being implemented across the group.
