If this famous brand can get back on track, it's too cheap.
If French Connection (LSE: FCCN) hadn't bothered with its retail operation last year, the company would have made an operating profit of close to £17m. This would have been deep bargain territory for a company with over £34m in cash, now valued at £51m at a reduced share price of 53.5p.
So what, though? "Coulda, woulda, shoulda" but didn't. The fact is it does have a retail operation, and that area of the business did lose money. And it accounts for 62% of sales.
Nevertheless, these raw numbers give us an idea of the possibilities if the retail side of the business can get back on track. And bear in mind the boss says it's been the most difficult winter season he's ever seen. So the company is doing what companies do and "reviewing" this side of the business.
Perhaps the poor performance of retail presents an investing opportunity? In other words, judgments about the retail business may be depressing the price too far. The trick is in deciding the extent to which poor performance is in the price.
The danger, though, lies in the extent to which the retail side of things is tarnishing the overall brand. French Connection is as strong as its brand, and sound financials can't always prevent the ship from sinking if a chain tries to trade its way back. Alexon was a recent example of such a gradual death.
Sound financials
Nevertheless, sound financials there certainly are. At the end of January the company had £34.2m in cash, no bank debt, and net tangibles assets worth half as much again as the entire company. The clothier also managed a £5m pre-tax profit overall as the wholesale side of the business picked up retail's expensive tab.
The potential turnaround at French Connection was discussed in detail on Foolish discussion board Paulypilot's Pub by its eponymous founder in January. This followed a presentation to a group of Foolish investors by the company.
Market opinion is clearly split as to whether the company can really re-energise its retail business, particularly in the UK, and whether the current management team will be radical enough. The CEO-chairman-founder owns 42% of the shares so has to be happy with any new direction. He may be considered too dyed in French Connection's historic wool as he's been running it for 40 years, but he'll also be very determined to protect his investment and life's work.
We need to weigh all these things as investors. If French Connection can do something about its retail business and continue to enjoy growth in Asia, then the shares could go some as they did a year ago, reaching 126p last March. If not, the cash offers quite a bit of downside protection.
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> David owns shares in French Connection.
