From the desk of our UK scribe...
Excuse the vulgarity. French Connection is the first retailer to my knowledge to use the recent cold snap as an excuse for poor performance. A crap name, poor merchandise and a general slow down are also contributory factors.

However sales down 17% in the past 5 weeks are truly frightening. The UK, European and US retailing businesses were loss making last year: this further decline, coupled with an increasing cost base, suggests that the coming year will be mired in red ink.

Whilst the 5-week decline is probably exceptional - expect some sales recovery when the weather improves - management clearly has a lot to do. Wholesale and licensing will likely go sharply off the boil on the back of this.

I'd sell. If I held any.

Editor's addendum: French Connection (FCCN) shares have staged a rally since a late 2004 flop and mid-December low of 217p. They stand at 308p today. Perhaps this will continue. But the macro environment is iffy at best; the shares stand on a forward PE of 11.4; and earnings, if forecasts are anywhere near correct, will grow 4.5% and 3.5% over the next two years. The ready reckoner ratio used when making Capital Chronicle's own investments:

(forecast eps growth% + dividend yield%)*100 / (p/e ratio less extraordinaries)

shows the FCCN at only 0.4, or seriously overvalued (1 is fair value). However, determined holders of the equity can take some comfort from the mitigating factors of low gearing and price-to-sales ratios.

Bookmark and Share

0 comments

Related Posts with Thumbnails