French Connection has announced six-month losses which forced it to close its Northern European retail division and make staff cuts in the second half of the year to bolster profitability.
The retailer cut 50 staff from its London headquarters and closed stores in Denmark and Sweden.
The group reported a pre-tax loss of £12.8m on a 4% growth in turnover to £116.9m for the six months to the end of July.
Like-for-like sales rose 2% in its UK and Europe retail division, which makes up more than half of turnover, but the core gross profit margin fell to 50.8% from 51.8% year-on-year. The retailer said the weakness of sterling was partly to blame.
Retail sales in the North America arm, which accounted for 16% of turnover, fell by 3% with margins down 6.5%due to increased promotions.
French Connection added that wholesale orders in both areas had fallen. Decreases in the wholesale businesses totalled £9.8m, including further transfers of business to the retail channel. The net operating contribution from UK/Europe wholesale was a loss of £0.4m, a decrease of £1.2m compared to the equivalent period last year.
The group said wholesale turnover during the period was affected by a marked reduction in orders for menswear product, with womenswear remaining flat. The weaker sterling affected the gross margin, which fell to 25% from 29% last year.
French Connection said it was expecting a 5% decline in wholesale sales in the second half compared with last year due to cautious buying for autumn 09 and spring 10.
Chairman Stephen Marks said: “Following on from the second half of last year, our business continues to be severely affected by difficult retail environments in all of our markets around the world. In addition to the underlying trading issues we have faced over recent periods, this has had a severe impact on our financial performance during the first six months of the year. Both turnover and gross margin have been weak and although we have made substantial savings in operating expenses, the trading result has declined significantly compared with last year. The core business continues to show encouraging development with continuing growth in French Connection ladies’ wear.”
He added: “‘Looking to the second half of the financial year we are aiming to achieve a small improvement on last year’s operating result from our current operations while also making the strategic changes necessary to stem the recent losses.”