CEO Stephen Marks said the firm remains on target to return the business to profitability this year

CEO Stephen Marks said the firm remains on target to return the business to profitability this year

French Connection Group CEO Stephen Marks says the company remains on target to return to profitability this year despite a drop in revenue and a widening of its statutory loss in the first six months.

In its interim results covering the six month period to 31 July, French Connection reported a loss before taxation of GBP15.1m (US$19.9m), compared to a loss of GBP5.9m in the same period last year. After tax, losses amounted to GBP5.8m from a loss of GBP5.7m a year earlier. 

Underlying operating loss, however, reduced by GBP0.4m to GBP5.5m from GBP5.9m in 2017. Group gross margin narrowed to 41.5% from 42.9%.

Group revenues of GBP58.1m were down 2.4% from GBP59.5m in the year-ago period with continued growth in wholesale performance offset by a reduced store portfolio and tough retail trading in the UK.

Overall retail revenue slipped 10.5% in the period to GBP27.3m from GBP30.5m due to a reduced store portfolio and a 7% like-for-like sales decline in UK/Europe. French Connection said the reduced store portfolio followed the planned closure of two non-contributing stores in the period, and three non-contributing stores and three concessions in the past 12 months; a reduction of 7.7% in average trading space over the 12 month period.

Meanwhile, the retailer said its e-commerce revenue reduced slightly, but with a continued focus on improving gross margin, the overall contribution was maintained. Progress has been made with the site, it added, with a new checkout recently launched and additional customer experience enhancements to be rolled out during the second half of the year to drive engagement and conversion.

The activity generated through mobile continues to grow with visits at 54.4% up from 49.3% last year.

"I am pleased that the changes we have made around the business over the last couple of years continue to move us forward," Marks said. "There is no doubt that progress has not been helped by the trading conditions in which we operate in the UK, although we can take great confidence from the performance of the wholesale business and the stability of the licence income.

"The order books we have provide a clear outlook for the second half of the year in wholesale although retail continues to be challenging. We remain on target to return the business to profitability this year and we will be doing everything we can to ensure that happens."  

Need for improved design-led ranges

Karla Rendle, senior retail analyst at GlobalData, notes "somewhat predictably", Marks points to the current UK retail climate for the continued retail woes of French Connection.

"Marks claims profitability for the year is on target – losses for H1 plummeted to GBP15.1m, compared with GBP5.9m in H1 2017/18 – and will be driven by scaling back retail operations this year, with eight store closures planned, two of which have already occurred," she adds. "Investors are clearly less optimistic, with share price dropping 7% in early trading."

For Rendle, this strategic move to focus less on its own retail sales and more on sales through third parties, particularly department stores, means wholesale revenue (+6.2%), which now takes a larger share of group sales than retail, will be relied on to drive future growth.

"This may feel like a precarious strategy in recent light of the House of Fraser planned closures; however, the company reassures us there is potential to expand department stores in the US and through pureplays in the UK," she says.

"While breaking even is at the forefront of Marks' recovery strategy, a 2.4% decline of online sales suggests that there is more to be addressed within the retailer than a troubled high-street environment. The future relevancy of the fashion house's premium-priced offer comes under scrutiny, as cheaper prices are offered by Inditex's brands and stronger design from affordable luxury fashion retailers Ted Baker and All Saints. This means French Connection must continue to offer improved design-led ranges, particularly during the upcoming partywear season in H2 to see a much-needed uplift in sales."