French Connection Group revenue declines 7%

Trading update

Trading has continued broadly in-line with guidance provided in the interim management statement on 17 May 2012.  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 operating result from continuing operations for the half-year will therefore be below last year by approximately £7 million.  Net cash at the end of the period was in the region of £20 million.

Brand licensing

Following a change in strategy by Sears’ management, the supply agreement between LF USA Inc. and Sears for products branded “UK Style by French Connection” has been terminated.  As a consequence LF has terminated its licence agreement for “UK Style by French Connection”.

This licence generated net income of £1.9 million in the year to 31 January 2012.  It is now expected that the income from this licence for the year to 31 January 2013 will be in the region of £0.9 million.  

A number of new licensing opportunities are currently being developed.  Two new licences for the operation of the French Connection kids’ wear range and for shoes have recently been finalised and opportunities in outerwear, accessories and furniture are currently the subject of advanced discussions.  Our other existing brand licences, most notably toiletries and eyewear, continue to perform well.

Outlook

Our new Winter collections are now available in our stores and on-line.  The initial reaction has been encouraging, but our experiences in the first half of the year are leading us to be very cautious in our outlook for retail revenue in the second half of the year.  

As previously reported, 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 inseason ordering to compensate for this.  We are achieving continuing revenue growth in North America, offsetting the decline in UK orders to some extent.

As previously reported we are conducting a thorough review of the UK/Europe retail operation in conjunction with external specialist advisors.  The process is well advanced and we have commenced in-store trials addressing the customer proposition and experience with the goal of improving sales densities and margin while reducing costs.  We will cover this more fully at the time of our half -year results announcement in September.  

French Connection Group plc