French Connection shares dive on profits warning

French Connection warned of challenging conditions at its financial year-end. Picture: Ian Rutherford

The chain said in a trading update that it now expected its first-half retail results to be “materially lower than expected”. Shares in the group slumped 26 per cent to 39p, and have nowfallen by 50 per cent since last May.

“This is not good in any way,” one broker said. “Each time there has been hope of French Connection turning the corner the hope has been dashed.”

French Connection had warned of “challenging conditions” at its financial year-end, and said that the headwinds had “continued through the completion of the Easter period”.

Retail sector analysts at broker Cantor Fitzgerald said they now expected the company to make a loss of £3.5 million for the 2015-16 financial year.

The broker had previously forecast a return to the black for the group, to the tune of £500,000, after years of losses as it has tried to move away from its controversial “FCUK” branding past.

The latest disappointing performance contrasts sharply with strong clothing sales at the likes of Next and Primark, while market leader Marks & Spencer recently unveiled its first clothing sales rise in four years.

French Connection also competes against brands such as Reiss, Whistles and Ted Baker.

The chain, which has some 120 stores and concession outlets in the UK and Europe, said it was continuing to implement its store-closing programme to focus on fewer, more profitable outlets.

The retailer said it now planned to put the shutters up at seven stores during the current financial year. “We have been putting in place many improvements across the business in the past two years and will continue to implement positive change across the group,” the trading update said.

French Connection founder Stephen Marks, who is the company’s chairman and chief executive, has closed under-performing outlets, expanded the online business and brought in a new design team in a bid to end the long run of losses.

The group said that its wholesale performance was in line with expectations, with forward orders up year on year, while its licensing arm has continued to do well.

The group said that its cash levels had fallen to £9.9m, 17.5 per cent lower than 12 months ago.

It added it had no debt, and that stock levels were 7 per cent lower than the prior year.

In March, the chain revealed that same-floorspace sales at its UK and European stores slid 3 per cent in the financial year to end-January, due to disappointing second-half trading that was impacted by unseasonally warm weather.

Operating losses for the year were cut to £800,000 from £4.4m a year earlier and £7.2m in 2013. However, losses from the retail estate remained high at £11.3m as high street headwinds offset stronger trading in wholesale and licensing channels.

Freddie George, retail guru at Cantor Fitzgerald, said that the chain’s retail trading in the first quarter “has been well below its expectations, impacted we believe by a weak retail trading environment, particularly in February and March”.

George added: “We also believe that there has been a step back in the quality and depth of the ranges in the stores.”