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Marks pledges to fight back after £17.4m loss at French Connection

Sharp slowdown in US is to blame, says retail chain

French Connection laid bare the crisis gripping the British and American fashion markets yesterday as it scrapped its dividend and posted its first loss in more than 10 years.

Stephen Marks, the chairman of company, which has retail and wholesale operations in countries including the US and Japan, said the results were "disappointing" but blamed a downturn in major world economies, particularly the "significant decline" in the US. The retailer is to take a further axe to its cost base, and has launched a review of underperforming stores.

In Britain and Europe, its menswear departments struggled, but Mr Marks said sales of ladieswear grew by 9 per cent, which was the main reason for a 2 per cent increase in its underlying sales in the region for the year to the end of January 2009.

Having paid an interim dividend of 1.7p, the retailer said it would pay no further dividend for the year. Over the year, French Connection suffered a pre-tax loss of £17.4m, compared to a profit of £3.1m for the previous year.

Philip Dorgan, an analyst at Panmure Gordon, said French Connection's loss was "worse than consensus, given that the 'underlying' £5.5m [loss] included £2m of property profits and £1m of negative goodwill".

The company's North American division contributed a divisional operating loss of £4m over the year, compared to a £0.5m loss in Europe. The retailer has 38 stores in North America, primarily in the US.

Mr Marks added that French Connection had "compromised" its gross margins over the year to protect its volumes and inventory levels, as it battled fierce discounting in the US market. Total turnover fell by 5 per cent to £248m.

In the UK and Europe, which accounts for about 70 per cent of the comapny's sales, French Connection's retail and wholesale businesses broke even for the year to 31 January, compared to a £5.3m profit a year ago. Its retail sales in the UK and Europe rose by 8 per cent over the year. Mr Marks said it would take time for its new menswear team to turn around falling sales and regain market share.

Despite the resilient performance in Europe, Mr Marks was downbeat about the outlook for consumer spending. He said: "Looking forward, it is clear that our customers are being very cautious in their buying due to the difficult outlook, and we therefore are not expecting to see growth in sales in the new year."

For the year to 31 January, French Connection said its group gross margin fell by 1.4 per cent at 61.3 per cent as a result of the weakness of sterling against the dollar in the second half, as well as deep discounting in the US.