Investors have greeted full-year financials from retailer French Connection (LSE: FCCN) positively in Tuesday business, sending the stock 4% higher from last night’s close.
At first glance the results are hardly reason for fanfare, however. It announced a fifth successive year of losses in the year to January 2017, with pre-tax losses rising to £5.3m last year from £3.5m previously.
The fashion giant saw group revenue slump 6.7% last year to £153.2m, with troubles at its wholesale and licensing divisions — allied with the impact of store closures — weighing on the top line.
French Connection slashed average selling space by 11.7% in 2016 and has shuttered an additional two stores since the close of the year, with an additional eight on the chopping block for 2017. The company aims to have just 30 outlets up-and-running by 2019.
British bothers
Chief executive Stephen Marks commented that the “noticeable improvement we have seen during the second half and into the new financial year leads me to believe that we are moving in the right direction.”
And Marks also noted that “the reaction to this year’s collections has been very strong so far with sales both in our stores and wholesale customers up on last year.”
But there is still a lot of uncertainty surrounding French Connection’s ability to snap back into the black. Not only does the company’s transformation drive have much more heavy lifting to be achieved, but increasingly-difficult trading conditions in the UK could hamper demand for its clothes and accessories in the months ahead.
French Connection sourced more than 75% of total revenues from its home market last year.
Foreign favourites
The prospect of rising inflation having a devastating impact on French Connection in fiscal 2018 and potentially beyond would therefore push me towards retailers with a greater foreign exposure.
And in this regard I believe FTSE 250 stars Supergroup (LSE: SGP) and Ted Baker (LSE: TED) could be considered superior picks.
Supergroup sources around 40% of total revenues from the UK and Ireland, and is embarking on an ambitious global expansion drive to help it meet surging foreign demand for its lines. Indeed, the Superdry owner opened 67,000 square feet of net new retail space in Europe and the US during May-October alone.
And these measures are paying off handsomely. Supergroup’s sales to European customers rose 62% during the first fiscal half, for example, and by 56% to its other overseas shoppers.
And Ted Baker sources around half of sales from the UK and Europe combined, although as its retail expansion shows, it is also plugging away to boost its presence in North America and Asia to drive future growth. And with good reason — sales in these territories shot 18.8% and 6.5% higher at constant currencies during the six months to August.
Ted baker has 470 stores and concessions spanning the globe, only 186 of which can are located here in Britain, and with recent openings in China, Bahrain and Indonesia.
The City does not expect French Connection to report profits any time soon, and has chalked-in another pre-tax loss of £3.1m for financial 2018 alone. By comparison Supergroup and Ted Baker are anticipated to record earnings rises of 17% and 14% respectively in their current fiscal periods, with further double-digit rises pencilled-in for next year.
I reckon the sheer amount of hard work French Connection must still undertake to get profits chugging again makes it a much less-attractive selection than the likes of Supergroup and Ted Baker.
