UK

French Connection Reveals £7.2m Loss After 'Difficult Year'

13/03/2013 10:11 GMT

French Connection has revealed a £7.2 million pre-tax loss after the retailer struggled with a bloated property portfolio, heavy leases and an increasingly competitive market.

With the UK and Europe division racking up losses of £16m in the year to 31 January, French Connection recorded an overall bottom-line loss of £10.5m, against profits of £5m a year earlier.

Founder and chief executive Stephen Marks tried to reassure investors on Wednesday by saying: "Although it is very early days in the new year, we have seen a better performance in UK retail, and we expect this to build as the year progresses."

The retailer's losses were not a surprise for the City, given the company's profit warning on 16 January after a dire Christmas period.

French Connection issued three profits warnings in 2012, prompting a review of its UK and European retail operations.

Analysts' view

Redmayne-Bentley stockbroker Onochie Eneh told the Huffington Post UK, the results read "extremely poorly" for French Connection, but noted investors obviously saw some positives as the share price provided an upswing during early market trading on Wednesday.

"On the outside French Connection has remained typically upbeat, but will be keeping everything crossed that its plans to improve financial performance, with staff improvements, reduction in inventory levels and the strengthening of its senior management will prevent it from joining its retail contemporaries on the administrative scrapheap," Eneh said.

"With a weakened brand, the company certainly faces an uphill task to compete in an already cluttered market.”

Henry Dixon, fund manager of Matterley Undervalued Assets Fund, told HuffPost UK the writing wasn't on the wall for the retailer just yet.

“With a cash pile of some £28 million on the balance sheet, French Connection has the wherewithal to ride out the current trading conditions which Marks calls 'the worst in 40 years'," he said.

"Its lease obligations are considerable, although store closures this year should impact positively. Its working capital position could also improve with reduced inventory, meaning less bargain-basement sales at the end of the seasons and their pricing in-store will see improvement.”

Nick Hood, business analyst at Company Watch, told HuffPost UK that the positive cash balance on the company's balance sheet certainly helped, but warned the turnaround plan would need "a good deal more substance than its bland public utterances suggest".

"While the company obviously recognises its problems with a tired offering and a worn out brand, it can't find the courage to dump completely. Its recipe for putting things right reads like something out of a book on management theory," he added.

And Freddie George, retail analyst at Cantor Fitzgerald, told the Scotsman: "Though these results are disappointing, we believe the business does have value."