French Connection reopening sales are slow, but it has sufficient financing
French Connection’s trading and funding update on Friday surprisingly provided a small glimmer of hope, even though the retailer said that times remain tough.
It said that since reopening began on June 15, initial sales "have been low, although conversion of those customers actually in the stores has been better than in the prior year”.
As with other retailers that have reported similar trends, it seems that those consumers enthusiastic enough to venture into physical stores at present are the ones who have missed physical shopping the most and seem to be most committed to buying something.
The company’s shops had been closed since March 23, which means no business through them for nearly three months. But currently, French Connection has been seeing sales volumes growing week-on-week as further relaxation of lockdown in the four countries that make up the UK continues. “However, we anticipate this to be a gradual process, especially in larger cities,” it said.
Despite its shops being shut for a big chunk of the year, the company was able to continue operating its websites in the UK and the US with e-sales up 24% over the last 15 weeks.
In addition, it has continued to supply a number of predominantly online wholesale customers during this period. And since the general reopening of stores, it has seen a significant upturn in interactions with the majority of its other wholesale customers in the UK and Europe that have now started to trade again.
It added that “over the lockdown period, the collection of receivables from our supportive wholesale customers has been better than expected”.
It paints a picture of a company that’s working its way back to the position it was in before the pandemic, although it has to be said that it's pre-crisis position wasn't that strong with French Connection having suffered years of declining sales.
On the funding front, it has been cutting costs and conserving cash and said it has been helped in these actions “with the cooperation of many of the company's key stakeholders including stock suppliers, non-stock suppliers, landlords and employees and we remain very appreciative of their ongoing support”. It said it has “worked particularly closely with its stock suppliers, many of whom we have had significant long-term relationships with, to actively manage Autumn/Winter 2020 inventory commitments to reflect current expectations of trading during the season”.
French connection was frustrated in its attempts to access government backed financing schemes during lockdown due to the qualifying requirements. And it's facing a reduction in its net cash position in the months ahead due to working capital funding requirements, tax payment, and amounts due to landlords and other suppliers that were deferred as part of the Company's Covid-19 mitigation actions.
To help it to get through all this, it has put in place a £15 million working capital facility with Hilco Capital for the next two years, which it expects will be “sufficient to cover the company's cash requirements, based on its current conservative expectations of future trade”.
It said it will “continue to tightly manage its cost base over the coming months and we await better visibility on the speed of the recovery of demand across different business channels and territories. Although the stores have reopened, with appropriate increased hygiene and social distancing measures in place, it is too early to predict how quickly and to what extent store footfall and therefore sales will recover. This will also impact the rate of improvement within the wholesale channel”.
But overall, it thinks it’s “well positioned to navigate an extended period of uncertain consumer demand”.
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