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French Connection, the fashion group that owns the controversial FCUK brand, has issued its third profits warning since March.
On Friday it said that full-year, pre-tax profit was likely to be between £11m and £14m, against expectations of £41m a year ago.
The group, which also owns the Nicole Farhi designer label and the Toast mail order company, made the revision within two months of the end of its financial year and in the midst of the year’s busiest shopping period. It blamed disappointing retail sales and a shortfall in wholesale orders.
“Since September we have seen an improvement in retail trading. However, this has not been sufficient to meet our targets and this, combined with a shortfall in our wholesale orders for summer 2006, has resulted in pressure on the group’s financial forecasts,” the company said.
The fresh warning sent the shares down 12¼p, or 4.5 per cent, to 262¾p, with analysts suggesting it would add to pressure on Stephen Marks to separate his combined roles of chief executive and chairman.
In March, when French Connection reported a 15 per cent fall in full-year pre-tax profits to £32.3m for the year to January 30, it admitted that trading had been disappointing since the year’s end and insisted it was putting things right.
But in July it revealed that wholesale orders for this winter’s collection were down about 10 per cent, partly blaming the failure of 50 or so of its customers, including Allders, the department store group. On Friday, someone close to the company admitted that any recovery in its wholesale operations would be a long haul.
Paul Rossington, analyst at brokers KBC Peel Hunt, said French Connection had been hit by the lack of in-season repeat orders. “I suspect there have been virtually none, which could mean wholesale is off by 25 per cent,” he said. “You won’t see an improvement in wholesale until retail shows positive signs. That might be next year, with wholesale turning at the back end of 2006 or early 2007.”
At the interim stage, wholesale sales accounted for about 45 per cent of the total. The company insider admitted that more needed to be done to turn round the company’s fortunes.
French Connection is 42 per cent owned by Mr Marks, who is also the founder, and 13 per cent by Baugur, the Icelandic investment company. But ranges and sales are not its only problems. Its total rent bill is likely to jump about 9 per cent next year – much higher than the 5 per cent rises rival retailers expect.
Baugur on Friday declined to comment on Mr Marks’ position in the light of the profits warning. Only one other of its investments in the UK, Goldsmiths, the jewellery chain, has a combined chairman and chief executive.