LONDON - British fashion group French Connection (FCCN.L) has seen a drop in underlying sales at its retail outlets in recent weeks, making it more cautious after swinging to a first-half profit at businesses it plans to keep.

French Connection A/W 2010

French Connection, which has been slimming down in a bid to restore profitability, said on Wednesday wholesale orders were ahead year-on-year and so it still expected to show progress over the full financial year.

In the latest stage of its restructuring, which has including existing businesses in Japan and northern Europe and selling its loss-making Nicole Farhi brand, the company said it had signed a new licensing partner for North America.

Under the deal with LF USA, a subsidiary of Hong Kong-based consumer goods exporter Li & Fung Ltd (0494.HK), the group will receive minimum net royalties of $10 million over an initial period to July 2014.

French Connection, which has struggled to reposition itself in recent years after the popularity of its FCUK brand waned, posted a pretax profit of 200,000 pounds ($310,000) at businesses it plans to keep, in the six months to end-July.

That compared with a 5.4 million pound loss a year ago, and the group said it was reinstating its interim dividend at 0.5 penny.

Turnover rose 4 percent to 96 million pounds, including a 3 percent rise in like-for-like sales in Britain and Europe, driven by growth in menswear and e-commerce.

"The like-for-like sales performance in our retail stores in the early weeks of the new season has shown a decline making us more cautious about our outlook for the second half," it said.

"However our wholesale forward orders are ahead of this time last year and we expect to be able to maintain the stronger gross margins achieved recently."

French Connection shares have outperformed the general retail sector by 45 percent this year on hopes of a return to profit. They closed at 45 pence on Tuesday, valuing the company at about 42 million pounds.

(Reporting by Mark Potter; Editing by Dan Lalor) ($1 = 0.6452 pound)