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French Connection swings to £5.5m loss

French Connection has plunged into the red reporting a pre-tax loss before impairment of goodwill charge of £5.5 million for the year ended January 31.

The £5.5m loss was against a £3.1m profit in the previous year and was blamed on the global economic downturn.

Excluding the impairment of goodwill charge, which relates to the acquisition of its US joint venture in 2001, losses were £17.4m.

Sales at French Connection increased to £248m over the period against £236.1m the year before and like-for-like sales at French Connection’s UK and European stores rose by 2% over the year thanks to a strong performance in womenswear, which as a category showed a 9% increase in like-for-like sales. Menswear performed less well over the year.

French Connection saw wholesale sales fall back by £8.1m to £47.5m, but some of this came back through the switch to a concession model in selected department stores. However French Connection warned that its stockists were being “very cautious” in their forward buying due to the difficult outlook.

“Behind the gloomy headlines however there are some encouraging elements in our performance, most notably that the core French Connection ladies’ wear ranges showed very good growth throughout the year and that our Toast business continued to develop well.”

Stephen Marks, chairman and chief executive, French Connection

The group also said that gross margin had been impacted by the weakness of sterling in the second half of the year and that its North American business had performed poorly, with like-for-like sales down 3% which had demanded heavy discounting.

French Connection chairman Stephen Marks conceded the figures were “disappointing”.

He added in a statement: “These are disappointing results and, to a large extent, are a reflection of the impact on fashion markets of the downturn in the major world economies and in particular the US market. Behind the gloomy headlines however there are some encouraging elements in our performance, most notably that the core French Connection ladies’ wear ranges showed very good growth throughout the year and that our Toast business continued to develop well.”

Marks added: “In order to deal with the changing retail environment we have instigated a cost-cutting programme and we are striving to improve efficiencies wherever possible. We have significantly reduced our discretionary budgets for the new financial year and we are working hard with suppliers to find savings wherever possible. However, especially within our retail stores, a significant proportion of the cost base is fixed. Our gross margins are being affected by the increasing costs of supply, including the considerable impact of the weaker Pound, and therefore every effort is being made to maximise efficiency in our supply chain. These changes will help to mitigate the impact on the financial results of the business, but we are preparing ourselves for a difficult new financial year. ” 

French Connection added that its Toast chain had performed well over the year.

To read the full statement from French Connection click the attached Pdf file.

 

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