Fashion retailer French Connection Group Plc today (14 March) said it is reviewing its UK retail operations after booking a 32% drop in full-year pre-tax profit.

The retailer, which had already issued two profit warnings, said pre-tax profit dropped to GBP5.0m (US$7.8m) in the year to 31 January, from GBP7.3m last year.

"During the past year our wholesale, international and licensing businesses have performed well," said chairman and CEO Stephen Marks.

"However, in the most difficult winter season I have seen in all the years I have been in business, our UK retail division has been very disappointing and this has had a significant effect on our results for the year.

"In the light of the performance of the UK retail division we are reviewing our retail operations in order to improve sales and margin in this core business.

"We are very aware that there will be no quick solutions and that changes we make will take time to have an impact."

The group said revenues rose 5% to GBP215.4m, up from GBP205.0m last year. Retail revenue in the UK and Europe was flat with last year at GBP110m, but wholesale revenues here were up 17% to GBP42.1m.

The business also generated an operating profit of GBP3.3m in North America, and said its licensees in Asia and Australia "continue to perform well." Likewise, there was "strong growth" in like-for-like sales at its joint ventures in Hong Kong and China.

Brand licensing income jumped 47% to GBP8.5m from GBP5.8m last year.

However, group gross margin fell 390 basis points to 48.1%, in part due to higher production costs, clearance of old-season product, and a greater weighting of revenue generated during the retail sales periods. 

The most significant divisional contributor to the decline was the UK/Europe retail business which accounted for 220 basis points of the difference. 

Looking to the year ahead, Marks said that while the UK retail environment is likely to remain subdued, French Connection expects to see further growth in wholesale, as well as international and additional store openings in China, Hong Kong and India.

The group has been trying to rebuild its core business for the past two years after closing most of its loss making operations in the US and selling its Nicole Farhi brand. The company is now focused on its French Connection, Toast and Great Plains lines.