French Connection hit by retail slowdown as sales and profits fall

The fashion chain French Connection has warned that the difficulties on the high street were set to continue as it reported a 22 per cent drop in profits last year.

The group, which issued a profits warning in November, said yesterday that financial results for the year to 31 January "were clearly not good enough". Pre-tax profits fell from £4m to £3.1m while revenues were down 2 per cent to £236.1m. In the UK, business revenues were flat at £115.6m while like-for-like sales fell 3 per cent.

Stephen Marks, chairman, said: "Our financial results for last year did not progress as we would have liked, having been impacted by a marked softening of the retail environment in both the UK and US towards the end of the year."

There had been some improvement in ladies' wear ranges and in the North American business, he added, but this had been offset "by a considerably more challenging retail environment in the last quarter of the year both in the UK and the US, a decline, as anticipated, in wholesale turnover in the UK and a difficult year for French Connection menswear".

Mr Marks said it was encouraging that orders were up, but blamed the weak performance on the general woes afflicting the high street. "It is tough out there," he said, adding that the continuing difficulties would impact on the recovery of the retail business.

He said ladies' wear had been doing well, but menswear had lagged behind. The menswear design team has been revamped, but the impact may not be felt until the spring and summer of 2009.

Philip Dorgan, an analyst at Panmure Gordon with a "sell" rating on the stock, halved his forecast for the year and reduced his target price from 80p to 60p. "We would agree with management that the economic outlook will slow the rate of improvement, so we are reducing our forecasts," he said.

However, shares in the company jumped 5p, or 6.25 per cent, to 85p. Analysts put this down to a "relief bounce" as the results were broadly in line with expectations. Investors also took cheer from the dividend being maintained at 5p, and the group reporting its first improvement in wholesale orders for two years. Orders in Europe and the UK for the spring/summer collection were 5 per cent ahead of last year.

French Connection relaunched its website this week. It is planned to generate 10 per cent of sales eventually.