French Connection Group has achieved its goal of returning to underlying profitability as CEO and chairman Stephen Marks notes discussions regarding a potential sale of the business are “ongoing” with several interested parties.
In its preliminary results covering the year ended 31 January, French Connection reported underlying operating profit of GBP0.1m (US$130,824), compared to a loss of GBP2.1m last year.
The group did, however, record a loss before taxation of GBP9.3m, compared to a loss of GBP3.8m in the prior year. Group gross margins increased by 1% to 55.1%, driven by improved base margins and slightly lower markdowns despite the increase in the proportion of sales through the outlet stores.
Group revenues edged up 0.2% to GBP135.3m from GBP135m in the year-ago period, due to a 10.3% rise in wholesale performance which offset a 6.8% reduction in like-for-like sales, combined with store closures.
Overall retail revenue slipped 10.6% in the period to GBP58.4m from GBP65.3m due to a reduced store portfolio. During the year the group closed ten non-contributing locations consisting of five stores and five concessions, ending the year with 96 operating locations. Average store selling space was reduced by 5.7% over the period.
Meanwhile, the move towards higher levels of mobile traffic continues at 56.8% compared to 50.9% last year.
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By GlobalData“I am pleased to report that we have achieved our target of returning the group to underlying profitability this financial year,” Marks said. “This is only part of our overall journey, ho,wever it represents a significant achievement given the results over recent years. This has been achieved despite the ongoing difficult retail trading environment in the UK and is the result of the changes we have made in all areas of the business to adapt to the ever evolving markets in which we operate.
“While we still have a way to go to return the business to an appropriate level of profitability, I believe that we have made and continue to make significant progress.”
In addition, Marks added discussions with several interested parties regarding a potential sale of the business are “ongoing”.
The news follows an announcement in October of last year in which French Connection confirmed it has commenced preliminary discussions with four parties and has had conversations with several others regarding the company’s plans.
Now, Marks said the group continues to expect the strategic review, including the formal sale process, to conclude during the first half of 2019. He added the business will make further announcements “when appropriate”.
Sofie Willmott, senior retail analyst at GlobalData, notes although French Connection has reported “marginal” top line growth in FY2018/19, retail sales have suffered with the division down 10.6% and like-for-like sales slumping 6.8% despite the retailer closing ten poor performing locations.
“French Connection must give consumers a clear reason to shop with the brand by refining its range.”
“In the competitive UK clothing market French Connection’s more subtle brand handwriting fails to stand out against more distinctive players such as Ted Baker, Reiss and Whistles which all have a clear design direction. To return to like-for-like sales growth, French Connection must give consumers a clear reason to shop with the brand by refining its range,” she says.
While with the business still up for sale and no takers as yet, despite ongoing conversations with interested parties, French Connection has got a hard slog ahead, Willmott adds.
“As consumer confidence is expected to remain low in 2019, the retailer must better define its brand identity and point of difference to both convince a buyer it has future growth potential, and to attract shoppers back.”
