French Connection and Zara continue with expansion

FRENCH Connection and Zara have vowed to continue their expansion in China and eastern Europe as they seek to brush aside continued weakness in their home markets.

The two retailers posted sharply contrasting results, with French Connection – which is closing loss-making stores in a bid to revive its fortunes – falling into the red after a drop in sales.

But Zara’s parent company, Inditex enjoyed a sharp rise in full-year sales and profit as its drive to expand outside austerity-hit Europe continued to pay off.

Inditex, the world’s largest clothing retailer, shrugged off slower sales in Europe, particularly in its home country of Spain, by expanding into Asia and boosting its online presence.

Sales rose 16 per cent to €15.9 billion (£13.8bn), which helped lift net profits by 22 per cent to €2.4bn. However, the profit figure was at the lower end of some analysts’ expectations due to a sharp fall in margins.

The group, founded by the world’s third-wealthiest man, Amancio Ortega, opened more than 480 stores in 64 markets, including Armenia, Ecuador and Georgia. Inditex, which also owns the Bershka and Massimo Dutti brands, has 6,000 outlets across 86 countries and plans to launch a website for flagship label Zara in Russia later this year.

French Connection has also been growing its online operations, with internet sales accounting for 10 per cent of retail takings in North America during the year to the end of January. The firm said: “We are continuing to build our international distribution network with additional stores opening in Asia, India and eastern Europe in the new year.”

However, like-for-like retail sales in the UK and Europe fell 7.4 per cent during the year, which saw overall revenues drop 8 per cent to £197.3 million.

As a result, the firm posted an underlying loss of £7.2m for the year, compared with a £4.6m profit for the previous 12-month period, although founder Stephen Marks said there were signs of an improving performance in the UK.

Freddie George, a retail analyst at Cantor Fitzgerald, said: “Though these results are disappointing, we believe the business does have value.

“It has a number of valuable brands including Toast and Great Plains and has a relatively strong balance sheet with net cash encouragingly forecast to exceed £20m by the end of January.”

Marks, the group’s chairman and chief executive, said initiatives to boost sales were “beginning to show interesting results”.

He added: “Although it is very early days in the new year, we have seen a better performance in UK retail, and we expect this to build as the year progresses.”

Marks said that, despite a “very difficult” property market, two stores in the UK and Europe were sold during the year, along with three in North America, and it would continue to seek tenants for underperforming outlets.

The group ended the year with £28.5m of cash but Marks said no dividend would be paid to shareholders, who received 1.6p a share last year.