French Connection Group PLC (LON:FCCN) shares dropped after posting a 2.4% decline in first-half revenue, blaming difficult trading in the UK retail market.
Group revenue fell to £58.1mln in the six months to July 31 from £59.5mln a year ago as the fashion retailer closed down a number of underperforming stores.
Retail revenue dropped 10.5% to £27.3mln with like-for-like sales down 7.0%, accelerating from the 4.1% decline reported last year.
Wholesale revenue grew 6.2% to £30.8mln while licensing income was flat at £2.6mln.
Losses narrow after store closures
The company shut four stores and three concessions over the past year in response to the impact of online competition and weaker consumer confidence in the UK.
It expects to close six more non-contributing stores in the current financial year.
READ: French Connection annual loss narrows to £2.3mln despite ‘particularly challenging’ conditions in UK retail
The costs saved from the store closures helped narrow the group’s underlying operating loss before tax to £5.5mln from £5.9mln last year.
French Connection also improved its net cash position to £12.8mln from £6.7mln the prior year.
French Connection expects return to profitability
However, underlying gross margin fell by 140 basis points to 41.5%, reflecting an increase in wholesale clearance sales in the US, and a higher level of retail sales through outlets due to the reduction in the store portfolio.
Looking to the second half, the company said retail remains challenging but the outlook for the wholesale division is upbeat with a strong order book for its winter and spring collections.
“We remain on target to return the business to profitability this year and we will be doing everything we can to ensure that happens,” said chief executive and chairman, Stephen Marks.
As part of its efforts to cut costs and return to profitability, French Connection sold its 75% stake in the Toast brand to the Bestseller Group for £11.7mln, net of costs, during the first half.
READ: French Connection shares pop-up as it sells stake in Toast for £23.3mln to Bestseller
The transaction generated a total profit on the sale of £9.7mln.
Shares fell 6.1% to 47p in morning trading.
Numis retains positive stance
Numis maintained an ‘add’ rating and target price of 60p on the stock, citing an improved loss position boosted by solid progress in wholesale and the benefit of store closures.
"We leave our forecasts unchanged, continuing to expect the business to achieve breakeven for FY19," the broker said.
"We remain confident in the growth prospects for the French Connection brand, and retain our positive stance."