French Connection losses continue, but US performance improves
French Connection’s annual results made bleak reading on Tuesday. The under-pressure fashion retailer reported retail sales down and another hefty loss, as well as wholesale revenue falling. That said, its performance in North America seems to have improved with wholesale there up in double-digits.
None of that seemed to take the company by surprise and founder/company chief Stephen Marks said the performance in the 12 months to January 31 was "as anticipated". He also said “the continued difficult trading conditions in the UK and potential uncertainty due to the Covid-19 coronavirus” aren’t helping.
But he struck an upbeat note when talking about the American performance and also said “we have good forward order banks in the UK to be delivered during the first half of the year. The initial reaction to the winter ranges has been positive, particularly at our recent New York Fashion Show”.
Not that this is likely to provide much relief in the months ahead. Marks added that “we believe the trading landscape in the UK is unlikely to improve in the short term. We are working hard to ensure we are operating as efficiently and cost-effectively as possible while working closely with all our trading partners to maximise business with them”.
So let's look at the numbers. Group revenue fell 11.4% on a reported basis to £119.9m, and was down 11.1% at constant currency, “being impacted by the planned closure of stores and the difficult retail trading environment in the UK”.
The underlying loss was £2.9m compared to a restated underlying profit of £0.8m in the previous year. The pre-tax loss was £7.3m, compared to £8.6m the year before.
The closure of the China and Hong Kong joint venture during the year contributed a £0.5m loss and the company ended the year with cash of £8.1m, compared to exactly double that amount 12 months earlier.
It said wholesale revenue fell 4.8%, or 4.6% at constant currency, although it was up 15.7% in North America. And on a constant currency basis, that rise was an even better 16.1%.
But it saw a decline in like-for-like sales in the UK and Europe of 2.5%, although this wasn't as bad as the 6.8% drop of a year earlier. This largely reflected weak UK retail trading conditions in the second half. Total retail revenue fell 20% on the back of planned store closures.
The retail gross margin fell to 51%, from 55.1% last year due to H2 markdowns, a lower level of foreign exchange gains and more sales through lower-margin outlet stores.
E-tail revenue was slightly down, but the company started to see some e-commerce benefits from improvements being made and said that the e-commerce business (both its own and through third-party customers) will "play a significant part in the growth of the business in the future”.
So what are we to make of all this after the company had previously been talking about making progress? Well, Stephen Marks was clearly disappointed and said the performance during the second half in particular was considerably worse than expected, especially during Q4 in the UK.
And while he was upbeat about the American growth, saying the strong sales rises it saw has continued with "another excellent sell-through at major department stores", there was a reference to some big issues that many other UK retailers could face as Brexit becomes a reality.
He said the American performance was “adversely impacted by the additional import duties imposed”. That was a consequence of America's issues with the EU, but even if the UK does a trade deal with the US, unless a trade deal on favourable terms is concluded with the EU as well, many British retailers could be facing additional import duties when exporting to the country’s largest trading partner come the end of the year.
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