Fashion brand French Connection's (FCCN) worse-than-expected half-year results and cautious outlook statement trigger a 7% share price retreat to 26p.

Losses widened following a disappointing performance from the Spring 2015 collection, delaying a return to profitability, though the company does have the financial clout to invest in its ongoing turnaround.

Click here to spin through half-time results from the clothing and accessories retailer, whose valuable brands include French Connection, TOAST and YMC.

As foreshadowed in French Connection's April profit warning, pre-tax losses widened in the six months to July, though the increase from £3.9 million to £7.9 million is bigger than the £6.5 million deficit forecast by Cantor Fitzgerald Europe.

Web chart - FCCN - Sep 15

Losses reflect a poor performance from French Connection's Spring 2015 collection, with the retailer also bemoaning tough conditions on the high street generally.

Total sales fell 9.8% to £75.8 million, reflecting a sharp fall in UK and Europe retail like-for-like sales, as well as the impact of store closures as founder, chairman and chief executive Stephen Marks pushes ahead with restructuring.


French Connection, whose finance director resigned in July, is firmly out of fashion with investors, yet the financial results announcement does contains some positives.

Over the first six weeks of the second half, retail trading has picked up significantly, buoyed by a well-received new Winter collection, while gross margins have also strengthened.

The licensing business continues to grow and Marks highlights solid Spring 2016 forward orders in the wholesale business too. Furthermore, French Connection closed the half with a strong balance sheet, flush with £15 million net cash and no debt.

'We are pleased with the recent change of trend in UK/Europe retail performance,' says Marks in a rather cautious outlook statement, 'particularly given soft trading on the high street in August. Trading, however, is unpredictable and we are as ever dependent on the Christmas selling period.'

Cantor has increased its full-year pre-tax loss forecast from £3.5 million to £4.5 million and does not expect French Connection to break-even until the financial year to January 2018.

'The business is now expected to be loss-making over the next two years after a disappointing trading update,' says Cantor's retail guru Freddie George.

'Management needs to concentrate on the profitable parts of the business, set in place a strategy to increase underlying gross margins, accelerate the store closure programme and reduce costs,' says the analyst, adding 'there is nothing in the statement to say there is any urgency to change strategy'.

Conceding French Connection is 'difficult to value because it is forecast to make losses over the next two years,' George notes 'the company has a well-established Retail and Wholesale network, successfully selling in over 50 countries and four Continents and has four brands, which each have value.

'It also has a cash balance, which averaged £13.3 million over FY15, and a net asset value of c.60p per share, which comfortably exceeds the current market capitalisation.'

Issue Date: 21 Sep 2015