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French Connection sales fall in “very difficult” H1

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British fashion retailer French Connection has reported a pre-tax loss of £6.3 million in its first half as sales continued to fall, it has been announced today.

Revenue dropped 6.6 per cent to £96 million in the six months to July 31st 2012, forcing the struggling retailer to review its strategy and continue to implement new initiatives to drive growth.

Across the UK/Europe retail division of the business, sales dropped 10 per cent, impacting gross margin while like-for-like gross sales declined 9.5 per cent over the period, though the group noted that it has successfully completed the extensive review of its UK retail business as announced in March.

Stephen Marks, Chairman and CEO of French Connection, said: “The last six months have continued to be very difficult for French Connection’s UK/Europe retail business which has had an impact on the Group results for the period.

“We have completed our extensive review of the retail business and have implemented a set of detailed initiatives across a broad number of fronts designed to improve the performance of the retail division and the business in general.”

Such initiatives involve improved store operations while developing its product offering and improving merchandise management, Marks explained, adding that disposing of loss-making stores was also a priority.

Gross margin fell by 2.3 per cent to 47.7 per cent as increased promotional discounting negatively effected the business, while total group operating expenses increased by 2.8 per cent on the same period last year as a result of increased investment in its e-commerce operations.

Such investment proved fruitful as e-commerce grew 23 per cent year-on-year across the UK/Europe, though retail analyst firm Conlumino’s Managing Director Neil Saunders warned that this is not enough to distract from the “dismal” figures.

He said: “French Connection’s issues are compounded by the fact that it’s prices are too high relative to others in the market.

“If product was ‘must have’ this would just about be acceptable; that it isn’t means that the company has had to resort to discounting in order to shift lines.

“There is much work to be done to put this right and, fortunately, management does seem to recognise some of the challenges with the results of its recent review focusing on areas like shop design and product.

“However, this will not deliver immediate dividends; if the changes are successfully driven through the business it will be a matter of years, not months, before financial rewards can be reaped.”

Outside of its UK and European operations, revenue also declined despite “strong demand” across channels in North America, though in the Rest of the World, new store openings boosted sales.

As such, Marks is particularly cautious about the trading environment in the UK, though believes French Connection’s position as a “highly recognised and well-regarded brand” stand it in good stead despite setbacks.

“We are not expecting any improvement in the UK retail trading environment in the second half of the year and while it is too early to expect any significant impact from the results of our retail review we are making every effort to drive revenue and protect the gross margin while controlling costs very tightly,” Marks explained.

“We recognise that the route to sustained recovery is likely to take some time, however we are committed to building on French Connection’s core strengths.”

Published on Wednesday 19 September by Editorial Assistant

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