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Tough Times at French Connection

While net profits at French Connection quadrupled, a tough retail environment caused the British retailer’s pre-tax profits to take a 22.5 percent dive.

LONDON — While net profits at French Connection quadrupled to 1.6 million pounds, or $3.2 million at current exchange, in the financial year ended Jan. 31, compared to a profit of 400,000 pounds, or $808,700 in the previous year, a tough retail environment caused the British retailer’s pre-tax profits to take a 22.5 percent dive. 

The rise in net profit was entirely due to the absence of a one-off tax charge that the company paid in 2007, which negatively affected its profits last year, the company said Wednesday. Before taxation, profits in the financial year to 2008 fell 22.5 percent to 3.1 million pounds, or $6.3 million, from 4 million pounds, or $8.08 million, in the same period last year. 

The company said that the difficult trading environment in the U.S. and the U.K., coupled with the weak performance of its men’s wear product, contributed to the drop in pre-tax profits. 

“Our financial results did not progress as we would have liked, having been impacted by a marked softening of the retail environment in both the U.K. and the U.S. towards the end of the year,” said Stephen Marks, chairman and chief executive of French Connection, in the statement. 

During the period, sales fell 2.1 percent to 236.1 million pounds, or $477.6 million, from 241.3 million pounds, or $488.2 million in the previous year, which the company attributed mainly to an “anticipated” 12 percent decline in its wholesale business in the U.K. and Europe. 

However, the company said in the statement that its women’s wear had seen a 2 percent growth in sales, and that its North American business had improved, with a 7 percent rise in retail sales in the region and a 10 percent rise in wholesale sales, in dollar terms, during the period. 

“We remain confident that we have the foundations required for a recovery in trading volumes, with strong ladies’ wear ranges and refreshed design and merchandising teams in men’s wear,” the company said in the statement. In the past few seasons, Marks has endeavored to improve French Connection’s fashion credentials and steer the company away from the controversial brand image it cultivated in its FCUK era. For spring, Marks tapped Fabien Baron to create a more fashion-led advertising campaign. 

However, citing a “lackluster” sales performance in its U.K. and European stores, the company added that “the market will make any gains difficult to find, and…tight control of inventory levels and continued focus on reducing costs will be imperative.” 

The company said that Toast, its mail order business, had performed well, but added that growth at Nicole Farhi “had been hard to find.” “We are investing in additional management resources for the brand in order to provide fresh momentum for what remains one of the U.K.’s best-known designer labels,” the company said. 

And while the company said that wholesale orders in the U.K. were up 5 percent for spring ‘08, compared to the same period last year, Marks was cautious in his outlook for the forthcoming year. “The continuing difficult economic environment predicted for the new year is likely to have an impact on the rate of improvement in our retail business,” said Marks. “The final outcome will depend on the general retail environment in our markets.”