French Connection issues profit warning as revenues fall 7%
High street fashion chain French Connection has warned that its first half operating profit will be £7 million lower than last year and said it was remaining very cautious about its outlook for retail revenue in the second half.
Group revenue for the six months to 31 July 2012 was 7% below the level achieved last year while gross margin was also lower as a result of additional discounting.
The retailer said in a trading statement: "Our Winter 2012 wholesale orders in UK/Europe are slightly below the levels at this time last year and we are working to increase the levels of in-season ordering to compensate for this." .
French Connection had already said in May that it was unlikely that full-year profit would meet current market expectations due to prevailing consumer caution and ongoing economic difficulties in the UK.
In today’s trading statement, the company said the supply agreement between LF USA and Sears for products branded "UK Style by French Connection" had been terminated following a change in strategy by Sears' management. As a result LF USA had terminated its licence agreement for "UK Style by French Connection".
The licence generated net income of £1.9 million in the year to 31 January 2012 but French Connection now expects that the income from the licence for the year to 31 January 2013 will be around £0.9 million. The company said a number of new licensing opportunities were currently being developed.
French Connection said its review of the UK/Europe retail operation was now well advanced. As part of this the retailer has launched in-store trials addressing the customer proposition and experience with the goal of improving sales densities and margin while reducing costs.
The company added that it was continuing to see revenue growth in North America, which was offsetting the decline in UK orders to some extent.
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