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French Connection continues talks on potential sale

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French Connection continues talks on potential sale

French Connection today said that talks with potential buyers are continuing.

 

The multichannel fashion retailer says it is in discussions with “a number of interested parties” and has extended the deadline for its strategic review and potential sale process until it publishes interim results in mid-September.

 

In the meantime, it says, “the board continues to believe that French Connection can deliver long-term growth and remains focused on building on the momentum achieved last year and driving the business forward.” In the meantime, it says, there is no certainty that there will be any offer forthcoming or what terms any offer might be on.

 

Fashion in a changing context

Like other fashion retailers, French Connection, a Top350 retailer in IRUK Top500 research, is trading in a category where sales are both growing slowly overall - and moving online faster than in other sectors. The ONS Retail Sales Report for May 2019 estimated that shoppers buying across all retail channels bought only 0.3% more clothing, footwear and textiles that month than at the same time last year, and 4.5% less than the previous month. The longer-term three month trend suggested that shoppers bought 1.6% more clothing in the three months to May, compared to the previous three months.

 

But focus on online sales alone, and the trend is different. Ecommerce sales of clothing, footwear and textiles were up by 6.4% in May 2019, compared to the previous years, and down by 1.5% compared to the previous month. In May, 18.7% of all retail sales in the sector took place online. For contrast, 5.4% of food sales were online, as were 13.8% of household goods sales. Only department stores came close to the proportion of clothing sales made online, at 18.1%.

 

French Connection reshaped

French Connection latest full-year results to January 31, show its overall sales growing similarly slowly, by 0.2% to £135.3m. It has responded to customers’ moves to buy more of their clothing online by closing half of its stores over the last five years, reducing its estate to 96 stores and 195 concessions, as of January 31 2019. Just 43 of the stores are in the UK and Europe, and the retailer ultimately aims to have 30 full price stores in the UK.

 

While it has reduced its store numbers, it has grown its wholesale business - with sales up by 10.3% in the year to January 31. Online sales fell by 3.7% in French Connection’s latest full year, to January 31, but accounted for 21.2% of the group’s retail sales. Some 56.8% of online sales came via mobile.

 

Pre-tax profits came in at £0.1m before one-off costs of £9.4m, related to discontinued operations and taking the retailer to a full-year pre-tax loss of £9.3m. At the time the figures were published, in March 2019, French Connection chairman and chief executive Stephen Marks said that while it still had “a way to go to return the business to an appropriate level of profitability, I believe that we have made and continue to make significant progress.”

 

The retailer, then, seems to have successfully reshaped its business to the way that shoppers now want to buy – but it may still have a way to go before it becomes profitable at the bottom line. Its future direction should become clearer by September.

 

Image: Screenshot of Frenchconnection.com/InternetRetailing Media

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