French Connection narrows losses as it ends ‘addiction to discounting drug’

French Connection’s decision to end its obsession with discounting and instead focus on brand equity has been cited as the reason losses narrowed in the first half of the year.

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Results for the six months to July 31 show a pre-tax loss of £6.1m, a slight improvement on the £6.3m loss it posted a year ago. French Connection says that is down to improved margins across its UK/Europe business, where operating losses fell from £7.7m a year ago to £6.6m in the first half of the year.

Analysts are putting these improved margins down to a drop in discounting, which had previously helped the retailer shift stock but meant it sold less of its clothes at full price, eating into profits.

Neil Saunders, Conlumino’s managing director, says: “For a number of years French Connection has been addicted to the discounting drug which has been necessary in order for it to shift stock. However, over the latest trading period the new management team shortened the sale period and managed to achieve a greater sell through of stock at full margin.”

French Connection is attempting a turnaround after years of underperformance. But so far it is slow going, with revenues still falling, down 6.4 per cent year on year for the first six months to £89.9m and like-for-like sales dropping 4.5 per cent.

Yet the company attributes the fall in like-for-like sales to its decision to start its summer sale late in an attempt to improve brand equity. It claims that its recently launched Winter collection is attracting the attention of consumers, with reaction “encouraging”.

French Connection CEO Stephen Marks says: “Although it is early days in our turnaround, the underlying strength of the business and the significant global awareness of the brand, coupled with the changes we are making provide the foundations for continued improvement and give me confidence for the future.”

Analysts warn, however, that this will not be enough to return French Connection to growth, with competition on the high street remaining intense.

Saunders says: “French Connection still does not quite hit the mark in terms of delivering the latest trends and putting its own unique angle on them. Our sense is that it will need to work much harder on its future collections if it is to regain the interest, and the spending, of consumers who are very well served by a whole proliferation of high street fashion labels.”

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