French Connection annual loss widens following poor first half

French Connection Group, for its financial year ended January 31, 2016 said that as highlighted in the interim statement, the spring 2015 performance was disappointing and as a result, the Group underlying operating loss for the full year increased to 4.7 million pounds (6.6 million dollars). After taking into account the cost of store disposals and closures the total loss before tax was 3.5 million pounds (4.9 million dollars).

Commenting on the results, Stephen Marks, Chairman and Chief Executive said, “Overall the performance for the year has been disappointing due to the very poor first half but the improvement we have seen during the second half and into the new financial year shows that we are definitely moving in the right direction. The reaction to this year’s collections has been strong so far showing that we are on track. We are early in the year and have a considerable amount of work to do to take the Group back to profitability although I believe that the actions we have taken to date will go a long way to taking us there.”

Poor first half weighs on annual results

The company closed 13 non-contributing stores during the year including six in UK/Europe and seven in North America and made operational and personnel changes across both design and merchandising which the company said have resulted in an improved performance in the second half. Total 2016 revenue was 8 percent lower than 2015 with 8.7 percent down at constant currency due to a combination of store closures, poor retail performance in the first half and the decline in North America wholesale.

Group retail revenues were 10.6 percent lower than the prior year and down 10 percent at constant currency due to the closure of 13 non-contributing stores and negative LFLs in H1. UK/Europe LFLs finished the year at 6.4 percent decline with a significant improvement in performance in the second half of 2.4 percent decline reflecting an increase in full price selling offset by a change in promotional activity as well as improvements from changes in design and merchandising put in place in the first half.

The retail gross margin was 57.3 percent with second half margin increasing 110 basis points. The retail underlying loss of 15.6 million pounds (22.1 million dollars) was a decline of 4.3 million pounds (6 million dollars) compared to prior year. This decline was predominantly due to the poor performance of the retail division in H1. Ecommerce sales represent 23 percent of total Group retail sales, in line with 2015.

Group wholesale revenues were 4.5 percent lower than prior year and down7 percent at constant currency, with UK/Europe revenue up as North America and Rest of World remain challenging. The wholesale gross margin of 32.2 percent was broadly flat reflecting a 200 basis point improvement in North America margin offset by higher discounting to clear inventory in UK/Europe.

Geographical analysis of the results

The geographical revenue break-down is largely unchanged with UK/Europe representing 74 percent of Group revenues. The combination of retail and wholesale in UK/Europe led to a decline of 2.4 million pounds (3.4 million dollars) in divisional operating contribution with North America results also reducing to 1.8 million pounds (2.5 million dollars).

The net income received from global licensing was 7.3 million pounds (10.3 million dollars) in the year with strong growth from the furniture licence with DFS which has been extended for a further five years.