French Connection warns of £7m hit

Fashion retailer French Connection has revealed it is facing a big half-year loss after seeing revenues decline by 7% on a year earlier.

The group, which has been taking steps to revitalise its UK stores business, said the result for the six months to July 31 will be £7 million below last year, when it recorded an operating profit of £300,000.

However, there were some signs of encouragement from the retailer as the 7% sales decline was better than the 9.5% fall reported in May.

The company, whose founder and chief executive Stephen Marks has called conditions as the worst he has known in 40 years of trading, added that the initial reaction to new winter collections has been encouraging.

But with margins coming under pressure from the need for discounting, the company said it remained “very cautious” in its outlook for the stores business over the second half of the year.

It has also been dealt a blow by the decision of US department store Sears to end a supply agreement for products branded “UK Style by French Connection”. The licence generated income of £1.9 million in the year to January. A number of new licensing opportunities are being developed, including for the French Connection kids’ wear range.

The company said its plans for overhauling the UK retail business were well advanced, with in-store trials currently taking place.

Its retail difficulties in the UK have been offset by better trading through wholesale channels and its licensing business, while profits have continued to improve in North America.

Freddie George, an analyst at Seymour Pierce stockbrokers, increased his forecast for full-year pre-tax losses from £1 million to £3 million to reflect the weak trading outlook in the UK and the loss of the Sears contract.

He added: “Although it will be a long haul to get the company back on the recovery track, we believe the business does have value. The company does have a number of brands including Toast and Great Plains and has a relatively strong balance sheet.”

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