By  on September 14, 2005

LONDON — French Connection saw profits plummet 68 percent to 3.6 million pounds, or $6.7 million, from 11.3 million pounds, or $20.9 million, in the six months ended July 31, due to rising rents, overhead costs and a relentlessly tough U.K. retail environment.

Sales, meanwhile, dipped 8 percent to 117.9 million pounds, or $218.4 million, from 128.2 million pounds, or $237.5 million, and the outlook for the rest of the year isn't much better. All figures have been converted from the pound at average exchange rates.

The company said in a statement Tuesday that wholesale order books for winter 2005 and summer 2006 are 15 percent below last year's levels in the U.K., and profits for the year will be at the lower end of their 20 million to 25 million pound, or $37 million to $46 million, estimate.

On the bright side, the company's winter collections are getting good press reviews and positive reaction from customers, the company said, and the licensing business is steaming ahead.

Stephen Marks, chairman and chief executive of the firm, said the fall-off in sales did not stem from pricing — a major reason behind the cutthroat competition in U.K. retailing.

Supermarkets such as Asda, Tesco and Sainsbury's are all selling trendy clothing at increasingly low prices, while Primark, a U.K. discount clothing chain, is now considered a fashion mecca rivaling Top Shop.

"The High Street is getting more competitive, but I think if you have interesting product the price is not relevant," Marks said. "Low price trends come and go."

Marks said the High Street as a whole — and not just clothing — was suffering because of higher gasoline prices and overexpansion of sales points. "Our shops look good and I think that if you have the product right the rest follows," he added.

Analysts believe there is hope.

"For too long French Connection has rested on its laurels, selling basic merchandise with a logo at a premium price," said Richard Ratner of Seymour Pierce in London. "But we believe that the emphasis is now on a more fashion-oriented garment. Provided one gets the fashion right, the retailer can still do very well," he added.French Connection's licensing business — as well as its business in the rest of the world — is in growth mode. Marks said the company has just signed a license with Lee Angel for a jewelry collection in the U.S., and had other deals in the pipeline. The jewelry collection, which is only for the U.S. market, will bow next year.

In the six-month period, net licensing income grew 10.5 percent to 2.1 million pounds, or $3.9 million, from 1.9 million pounds, or $3.5 million, powered mainly by the Boots toiletries license, French Connection's shoe license and the Australia territory license.

Tuesday's statement said, however, there was a drop in income from the company's worldwide fragrance license, which Marks said was due mainly to issues linked to Zirh, the division of Shiseido, which distributes the fragrance in the U.S.

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