Fashion brand French Connection (FCCN) falls 12.7% to 53.25p, as weaker-than-expected full-year figures and a muted outlook stoke downgrades. Despite narrowing the annual loss, chairman and CEO Stephen Marks warns high street trading 'remains challenging and we are planning accordingly'.
Finals mark a second year of improved trading for the clothing and accessories retailer, whose statement you can read in full here. Narrower losses for the aspirational fashion business, whose valuable brands include French Connection as well as TOAST, Great Plains and YMC, reflect the positive impact of turnaround initiatives announced two years ago, notably the shuttering of loss-making stores.
Yet the shares are out of fashion today, amid nervousness over a weaker-than-anticipated second half turn from the retail business in the UK and Europe. In common with other clothing retailers, French Connection suffered from unseasonably warm weather in September and October. Up against tough comparatives, like-for-like sales were also impacted by overly-conservative stock levels entering the January sales.
The good news is profits improved significantly in the wholesale business, with growth achieved across the UK/Europe and Rest of World region and North America returned to growth. License income grew from £6.1 million to £6.5 million, as French Connection reaped the benefits of new shoe and furniture licenses.
Following a sluggish start to the year, Cantor Fitzgerald's Freddie George downgrades his year-to-January 2016 pre-tax profit forecast from £2 million to £500,000 and his target price from 65p to 60p. However, the analyst sticks with his 'hold' rating, believing the recovery strategy has traction and pointing out French Connection 'has the support of a strong balance sheet, including a number of brands, and a strong licensing arm.'
In fact, year-end net cash of £23.2 million covers 40% of the £58.5 million market cap, suggesting downside is limited. With a brand that resonates globally, French Connection's cash-rich balance sheet means it has the financial clout to invest in pushing ahead with the recovery strategy.