French Connection Group has revealed it received an unsolicited takeover approach from a third party in the US last year as the British fashion retailer said it is “very close” to returning to profitability.
Losses narrowed to GBP2.3m (US$3.2m) in the year ended 31 January from GBP5.3m a year earlier, while underlying group operating loss reduced to $0.6m from $3.7m in the prior twelve months. Group gross margin narrowed slightly to 45.2% from 45.8%.
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Group revenues, meanwhile, were up 0.5% to GBP154m from GBP153.2m. The company said the increase was due to a strong wholesale performance which saw a rise of 8.6%, and a positive retail like-for-like performance (+0.8%) combined with store closures.
Overall retail revenue slipped 5.5%, or GBP4.8m, in the period to GBP83.1 from GBP87.9m. French Connection said the impact of a 0.8% increase in like-for-like sales was offset by the closure of a further 11 non-contributing locations during the year (seven stores in UK/Europe and four concessions). Average store selling space was reduced by 10% over the period.
The retailer added it still aims to have reduced its store portfolio to around 30 full price French Connection stores by the end of the new financial year but notes during the second half of the year, it opened a new store in Manchester, under its new store concept. “This is the first store we have opened in the UK for a considerable amount of time and serves as a great representation of the brand, in a smaller location but in a key market,” the company said.
Meanwhile, the retailer continues to see progress in its e-commerce business, which grew by 3.1% during the year and now represents 29.7% of retail sales. The firm is currently in the middle of a programme of investment in its site, the benefits of which it expects to see during the year ahead.
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By GlobalDataMobile continues to be a growing proportion of the group’s online activity generating 46.8% of traffic, up from 39.7% last year.
“We have made considerable progress across the group over the last year and I enter the new financial year with renewed confidence off the back of that success,” said CEO Stephen Marks. “Our goal has been to return the group to profitability and I believe we are very close to achieving that aim, given the momentum that we are currently seeing within the business.”
Marks added while it is clear the UK retail market is unlikely to improve in the near future, it has “clear visibility” on the benefits it will obtain from the ongoing portfolio rationalisation. In addition, he says the reaction to its collections and strength of its wholesale orders both for the spring and winter seasons further underpins the performance going forward.
“Although we are only early into the year, I believe we are in a very strong position to make significant progress again,” he says.
Meanwhile, the firm also confirmed it had received an unsolicited approach from a third party in the US about a potential offer for the group during the year.
It added, in interest of all shareholders, it entered a period of full due diligence and negotiation over a number of months which ultimately, did not lead to an offer.
While it did not disclose the name of the third party, French Connection said it incurred professional fees in relation to the exercise.
Mamequa Boafo, senior retail analyst at GlobalData, notes that while like-for-like sales moved out of negative territory in the second half, the picture still remains bleak for French Connection.
“This is French Connection’s sixth consecutive year of operating losses, though it is now on the cusp of turning a profit. Further store closures, with one location already shuttered and a further five confirmed by year-end, will help to strengthen its portfolio and aid its recovery.”
Boafo warnedthat while product investment is paramount – the group launched affordable bridalwear and introduced an activewear range last year – it should ensure it is not distracted from its core proposition. “It needs to focus on delivering design-led, contemporary clothing, and offering shoppers value for money, alongside a more disciplined approach to discounting to drive margins.
“While the brand continues to make steps in the right direction through store rationalisation and online investment, regaining appeal and winning back lapsed customers will be a challenge given competition from the likes of Ted Baker and Asos.”
