French Connection recovery begins, sells more full-price product
French Connection on Tuesday released what we assume will be its last set of results before it’s sold, and they showed the start of a recovery. But its performance is still far from its glory days earlier this century.
The company reported on the six-month period ending 31 July and said that group revenue fell 21.2% compared to the same period in 2019 to £40.2 million. This drop was due to the fact that it now has a reduced retail portfolio having closed a number of stores, as well as temporary store closures due to lockdowns. Those closures were offset, however, by increased wholesale and e-commerce trading.
The comparison to a year ago was a more flattering one with group revenue up 68.2% on that basis.
The company’s underlying loss narrowed to £0.9 million from £3.6 million in 2019, driven by the continued closure of non-contributing stores, the bounce-back of wholesale volumes and a tight focus on overheads.
The composite gross margin of 31.6% was down sharply on the 42.7% of two years ago due to the mix shift towards the lower-margin wholesale channel and the level of fixed product development and logistic costs on the lower overall volumes.
The number of stores that the company has closed can be seen from the fact that in the first half, average group retail space was down 35.1% on a two-year comparison and down 15.8% compared to a year ago.
Looking in more detail at the performance in the period, the company said that wholesale in both the UK and the US performed well, “with a good outcome to the summer season coupled with encouraging order books for the winter collections”.
Overall wholesale revenue grew to £28.8 million for the period from 2019’s £27.2 million. And the performance improved across all ranges with good sell-throughs, particularly in the US.
Retail revenue for the period was £11.4 million, down from 2019’s £23.8 million, reflecting those temporary store closures for 11 weeks due to Covid-19 restrictions and the significant reduction in the store portfolio since 2019.
But it achieved a stronger trading performance following the reopening of stores in Q2 2021 compared to the post-lockdown periods of 2020 and has “additionally seen the benefit of the closure of several non-contributing stores over the last 18 months”.
It added: “We took a significantly less promotional stance through the summer season in stores and through e-commerce, resulting in increased full-price revenue.”
In fact, e-commerce revenue grew to £5.8 million from £5.3 million, with growth achieved in both the UK and US despite reduced levels of promotion, reflecting the strong sell-through of summer product at full-price.
Chairman and CEO Stephen Marks — who will stand down when the firm’s sale goes through — said: “I am pleased that the improvement in business we saw in the early part of the period has continued throughout the first half of the financial year.
“Over the last five years, French Connection has made significant progress in its plans to rationalise the size of its store portfolio and to return the group to profitability.
“The board has concluded that the offer being made by MIP Holdings Ltd is fair and reasonable and recommends that all shareholders accept. Following completion of the transaction, I will retire from French Connection. This is an appropriate time for me to step back from the business that I founded in 1972, and I would like to take this opportunity to thank all our people for their contribution to our achievements over the years. I wish them all every success in the future.”
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