French Connection Share Discussion Threads

[dewtrader] 27/10/2013 14:41

big gap towards 60p then £130

[paulypilot] 27/10/2013 14:29

Hi Minky,

The article quoting Marks was specifically about Business Rates. Here is a link to that article in question:

He is right that Business Rates are absurdly high on retail premises, but on the other hand retailers know what the B.Rates are when they sign a lease. It is standard practice to get copies of the last 3 years B.Rates demands from the Council when you take on a new lease, so you can see what charges you will be liable for, and the trend of the cost, e.g. if it is subject to transitional relief, etc.

When I worked in the sector, they were set at a standardised national rate of x pence in the pound on rateable value. Then you employ a surveyor to appeal the rateable value, often with good outcomes (downwards).

I wrote to my MP about B.Rates being too high about 15 years ago, and he replied that it's just part of the overall occupancy cost, and that rents adjust over the long term accordingly, which is difficult to argue with.

In my experience, Business Rates were typically about a third to a half of the rent, and for a profitable shop B.Rates would be about 5% of turnover. Rent would be about 10% of turnover.
Loss-making shops could get to rent about 30% of turnover, and B.Rates about 15% of turnover.

So if Marks has shops where B.Rates are 40% of turnover, then he has some massively loss-making shops. This would be my guesstimate for FCCN's worst shops (figures are made up, and are per annum):

Sales (inc VAT) £300k
Turnover (Ex VAT) £250k
Gross Margin 55%
Gross Profit £137.5k

Rent £200k
Rates £120k (48% of turnover)
Utilities £25k

Staff Wages £160k
Consumables £30k
Other costs £30k

Profit/(loss) (£427.5k) p.a.


That might look a bit extreme, but I reckon it's probably not far off how FCCN's worst shops will be performing. So once the leases expire on those problem shops, then the overall figures should improve dramatically.

It's both a problem, and an opportunity for FCCN.

It would be madness to dispose of those units now, even if they could, as it would be prohibitvely expensive - remember that the landlord has to approve any assignment of leases, and you still have a potential liability if the assignee goes bust (because the lease then bounces back onto the assignor).

All they have to do is gradually exit the problem shops, as the leases expire, which should be do-able, as typically retail leases are for 15 years from inception. So problem shops will all be pre-credit crunch, therefore should all have remaining terms of 10 years or less.

All just IMHO.

Regards, Paul.

[amorruso] 27/10/2013 12:39

Someone is in the know anyway but it looks to me like someone accumulating shares as that was a sudden late rise.

Next week could well be interesting and this week could see near 45p or if volume continues near 60p but I will sit back for the big rise as that has still to come i.e. circa 150p.

[minky] 27/10/2013 07:23

Bamboo2 I believe Burton (Old Name) got into this problem and eventually led to their breakup. I seem to remeber someone saying at that time that rents should not be more than 10% of gross profits.

[alexkb] 27/10/2013 02:27

has there been any newspapers news as to the hijinks on friday?

[mr_bluesky] 26/10/2013 15:14

she-ra:

I'm not surprised it must have lost him a packet.

any way who are you calling a muppet....you Fraggle

Mr Bluesky

[whatgoesupcomesdown] 26/10/2013 14:26

I wish you to be right. One should detach oneself from the stock one bought! :)

[bamboo2] 26/10/2013 14:23

Minky, Marks was talking about both rates and rents being a problem.

He has joined with other retailers specifically pointing the finger at the commercial rates system, because it is a massive expense, that offers very little in return.

He seems pretty certain that there will be shop closures over the next five years, unless those loss-making stores turnaround. There's an average of 3 closures a year that should help towards reaching breakeven.

[stud-muffin] 26/10/2013 13:33

If there is any real momentum this will get to 55p easily.

If not it will return to 30p ish again. Volume though on Friday was conkers and I cannot help but think the trigger was someone in the know.

If this breaks 40p do not discount 70p as a short term target.

Having sold and bought more THT even I had to take 40,000 in three bites yesterday - damn the last being 37.5p Grr.

I may add on Monday if they go past 40p which oddly I expect them to.

[she-ra] 26/10/2013 12:57

CR doesn't like French Connection anymore you muppet!

[whatgoesupcomesdown] 26/10/2013 12:25

Then about 55p.

[whatgoesupcomesdown] 26/10/2013 12:24

Selective chart reading... :/Resistance around 40p

[dewtrader] 26/10/2013 11:14

see chart - highest level since may 12 - big gap to 60p here

[minky] 26/10/2013 06:26

Pauly, did you mean business rates or business rents?

[dewtrader] 26/10/2013 04:10

Big buys at the end of the day

[paulypilot] 26/10/2013 00:29

One final thing I would say. I've never met Marks, and don't wish to (as by all accounts he's a complete nightmare as a person - people in fashion retail usually are. Egos go crazy in this sector for some reason).

However, I worked in this sector, and I'll tell you one thing. A founder CEO will usually turn the company around. More often than not. They are egomaniacs usually, but when things go wrong, come hell or high water, the founder CEO will turn it around - often spectacularly.

I think Marks will turn this around. And the shares could well multi-bag.

That is an unfashionable view. But I know this sector.

Cheers, Paul.

[hastings] 25/10/2013 23:20

Spot on post....

[paulypilot] 25/10/2013 22:38

Hi,

Those two articles in the Telegraph (on the same day) about French Connection a few days ago were bizarre. I topped up after reading them - it sounded like they might be starting to get a grip on their issues, as one article talked about Marks throwing out a lot of the old guard (apart from himself!) and bringing in new people. It also talked about store refits, which are long overdue.

The other article was him belly-aching about business rates being so high, up to 40% of turnover. Well, my recollections from admittedly over 10 years ago as a retail FD, was that in our worst performing stores, Business Rates never went above about 10% of turnover. So if FCCN has stores where Business Rates are 40% of turnover, then they have some massively loss-making shops, which I've always suspected because their UK/Europe retail division managed to lose about £16m on about £100m turnover, which is one of the worst performances I've ever seen.

However, the good news is that they have profitable wholesale & highly profitable brand licensing divisions, which bring the overall losses down to a level where they can survive until those leases expire.

Hence, as I've consistently said for years now, FCCN is not likely to go bust. The problem leases will melt away slowly, and if they get their act together on product design & pricing, it could move back into profit.

People who have written off this brand are just wrong. It's a very valuable brand still.

No idea what will happen, but the spike on high volume today looks interesting.
Market cap still peanuts for a brand which has considerable credibility still - how else would they earn millions from brand licensing?!

Cheers, Paul.

[minky] 25/10/2013 20:17

That volume and price jump is going to blow my indicators sky high.

[lomcovaks] 25/10/2013 19:26

If I sell now, I'll recoup the losses I made selling after the post-Christmas trading update! :-)

I bought back in yesterday having been cross with myself for reacting to short-term news and selling too quickly when we'd spent ages on here thrashing out FCCN's prospects or lack thereof.

Whether this spike will hold is another matter but at least I'll let go and give this donkey the reins for a couple of years.

[bamboo2] 25/10/2013 18:11

nice bit of volume

[whatgoesupcomesdown] 25/10/2013 16:43

What's up?

[she-ra] 25/10/2013 16:01

Or maybe something else.