French Connection Share Discussion Threads

[hutch_pod] 12/8/2015 15:20

Interesting and Swatch don't seem the only ones...



"Worn by sportsmen such as Novak Djokovic, Uniqlo will pay £1000 per square foot on a new lease for its 40,000 sq ft shop."

At 33p, the business is valued at barely £12m if year end cash is c£20m! Appreciate this is a still dwindling cash pile.

[tmfmayn] 12/8/2015 15:11

jay083 -- all fair points. thanks

[tmfmayn] 12/8/2015 15:09

It is interesting to compare FCCN and TED.

In particular, TED makes much greater use of concessions than FCCN.

Between 2007 and 2015, TED's UK/Europe store count went from 21 to 37, but its concession count went from 78 to a hefty 214. Contrast with FCCN, where the UK/Europe store count has dropped from 85 to 75, while concessions have gone from 29 to 55.

FCCN's greater dependence on leased stores has meant about 22-23% of group retail revenues have been historically absorbed by lease costs. The figure for TED is 9-10%. I understand concession agreements are often based on a percentage of sales taken, rather than on a purely fixed 'rent', which would suit FCCN a lot better right now.

Also of interest is that the average TED outlet in UK/Europe is less than 900 sq ft in size, while the average UK/Europe outlet for FCCN is almost 1,800 sq ft. TED manages to squeeze sales of more than £800/sq ft from its smaller shops and concessions, while FCCN does much less than £400/sq ft.

If FCCN does need bricks, then small concessions is surely the way to go.

Where TED scores well on the retail front is gross margins -- 65% or so. FCCN has not seen such gross margins for 10 years now and recent years have seen them fall to as low as 55%.

FCCN really needs gross margins of 60%-plus to stand any chance of getting the economics right in the Retail division as the store estate stands at present. And there has been little evidence of such product improvement happening as far as I can see. As such, there has got to be a radical overhaul of the business and its cost structure.

All told, I doubt Marks would sell FCCN now, and I doubt TED would ever think of buying. Why would TED take on a costly estate and poor stock, when it can open cheaper outlets itself and already has a much better product to sell?

[jay083] 12/8/2015 14:44

not necessarily an accurate valuation tmf - the figures quoted are for 'zone a' not overall. Also there will be some allowance in the comparison for quantum i.e. that the market for a 1000 sqft unit is likely to be different to the market for a 14-15k sqft one.

the article is dated sept 2011 and states that the rent was recently settled by arbitration. assuming a 5 yearly review pattern, I would guess that the rent review is probably about now or very soon.

[dvb99] 12/8/2015 12:07

Quote: "Compare this business model to BooHoo, no stores and growth is huge"

True, but over the last 12-15 months Boohoo has actually performed worse than FCCN! ( i hold both!)

[rainmaker] 12/8/2015 10:44

If you're using technical indicators rather than fundamentals to make investing decisions in French Connection be extremely careful. Back in April FCCN's RSI(relative strength indicator)went deeply into oversold territory below 30........and the share price promptly collapsed. IMHO fundamentals are always king and of primary importance.

regards

[rainmaker] 11/8/2015 23:43

Thanks mreasygoing, I try my best.In the Stockmarket,I firmly believe if have a proven strategy like Value investing,have a strong work ethic,are patient and disciplined and are prepared to think and act independently then you will be very successful.I totally understand what you're saying about waiting for signs of a transformation in French Connection then you will miss the boat....click on the link



regards

[mreasygoing] 11/8/2015 21:49

Nice to see a sensible poster still around on ADVFN by the way Rainmaker.

[mreasygoing] 11/8/2015 21:39

Yes, evolve or die like Woolies failed to do :( FCCN are on my radar, but I wouldn't touch them until I see signs of a transformation, which could be a while yet. They hopefully have enough cash to see them through.

BooHoo have even recently launched their own Smartphone App, which apparently only 10% of retailers currently offer. Just think of all those 16-24 year olds browsing on their phones at college or the bus stop etc and buying a shirt or dress in a few clicks on the spur of the moment. FCCN need to evolve, I personally think there is a way back for the brand, but much needs to be done.

[rainmaker] 11/8/2015 21:00

Hi mreasygoing,yummy!Ha ha 100% on line "virtual business" its surely a wet dream scenario with gross huge margins and very low fixed costs, its got to be the future of retailing-a fraction of the staff costs-you don't have to pay surly, disinterested shop staff to spend most of the Company's time doing nothing, no expensive retails sites, no heating or lighting costs, no business rates,no delivery teams shuttling stock between branches,no need for window dressers or cleaners, you need a fraction of the working capital because you don't need to fill shops with merchandise.In an increasingly competitive and unforgiving world, the relentless march of direct marketing continues unabated. Even the distribution centres operating 24 hours a day, 7 days a week, 52 weeks a year, will require minimal staff as they will be fully automated, with railings along the walls sending goods to be dropped off/picked up, using special proprietary picking and sorting equipment.

However I'm not incredibly pessimistic about French Connection's future and I certainly wouldn't compare them to Woolworths however I definitely believe that confirmation from the Company of poor trading will send peeps scuttling for the exits and a collapse in the share price and with no hope of a near term profit, I confidently expect to see 20p.

regards

[mreasygoing] 11/8/2015 19:52

Compare this business model to BooHoo, no stores and growth is huge. I know where I would put my money, in fact I have.

FCCN need to evolve or die like Woolworths did.

[rainmaker] 11/8/2015 18:09

I have to declare that I have absolutely no position here but I see 50% downside from current levels to below 20p.Here's some food for thought taken from my "Value thread"-


rjmahan 10 Aug'15 - 19:28 - 7473 of 7483 0 0

French connection - was in tk maxx the other day lots of French connection stuff marked down... Could be coincidence or backward looking but still...

Rainmaker 11 Aug'15 - 16:31 - 7482 of 7483 0 0 edit

Hi Rjmahan,thanks for your post 7473, I have quite a few contacts in the retail industry but part of my research was indeed the amount of discounted French Connection stock available for sale at TK Maxx and your comment confirm my findings at all of the several outlets, I visited.For anyone unfamiliar with TK Maxx, they retail unsold branded "out of season" stock from other fashion retailers at substantial discounts.I can't remember a time when they had so much French Connection stock for sale.

A simple check of TK Maxx's website for French Connection stock returned 126 items-



Worringly most the stock is women's fashion, widely acknowledged to be the far more successful side of the retailing business.

regards

Rainmaker 11 Aug'15 - 16:52 - 7483 of 7483 0 0 edit

The big,big,big seemingly insurmountable problem for French Connection(FCCN) is the heavily loss making retailing side of the group which has meant that they have lost money in seven of the last 8 years, I believe.I've read that in many locations French Connection's rent is double the current market rent but they are locked into long leases with many years left to run.The market consensus appears to be that they no chance of making a profit in the foreseeable future. They're closing retail outlets as and when the leases expire or negotiating lower rent but the average lease has 4 and half years left to run :-( and some have as many as 11 years left :-( :-(

regards

[cheiftown] 11/8/2015 08:17

srpactive. Looking for your trade, How many will you be purchasing!!!!!!!!!!

[srpactive] 10/8/2015 17:26

Cfo stepping down, I am looking to increase tomorrow.

[hutch_pod] 10/8/2015 11:41

Not sure but a stack of buy orders just appeared...

[huntie2] 10/8/2015 11:14

Oh dear.....what's happening now?

[tmfmayn] 07/8/2015 12:32

Hi she-ra,

Well, FCCN is a bit contradictory in itself. Its Retail division consistently loses money and yet its Wholesaling and Licensing activities remain profitable.

Seems to me the brand has gone stale in the UK, and as such can no longer command the gross margins in the shops needed to cover the lease costs, staff wages etc.

But the economics of wholesaling, overseas franchising and licensing still allow FCCN to turn a profit from the those activities. Maybe that is because the brand has not gone stale outside of the UK, or the wholesalers, franchisees etc have a much lower cost base to sell FCCN products and still make money.

I cited ASOS as an example of a retailer that has not needed bricks to prosper. I did not mean to suggest its low-aspirational brand is what FCCN should aim for. I agree, FCCN should remain as a mid-luxury brand. But when the associated bricks have cost FCCN £50m of losses over the last ten years or so, you have to seriously question why you need these bricks.

'Turning the stores around' ultimately requires fresh product that can produce the gross margins necessary to cover the store costs etc. History suggests that is unlikely to happen anytime soon, given FCCN refreshes its range once/twice a year anyway?

To me at least, it seems obvious for FCCN to go all out and become a pure wholesale and licensing business. The firm simply makes money that way, and it would operate with fewer liabilities and less expenditure than it does now, and would generally be seen as a much better business by investors.

And yet Marks seems happy to plod on with a few stores shutting here and there, and he really is responsible for the lacklustre product and consistently woeful Retail results. Sure, the average duff store has just 4 years on its lease left to run, but roll on 2019 and we may find the better outlets have since deteriorated and today's manageable leases have suddenly become tomorrow's onerous millstones. We then could easily find ourselves in the same situation as now.

It's best if Marks bit the bullet now with Retail. Either that, or he should step back and hire a new CEO that can do the job for him.

Mayn

[katie priceless] 05/8/2015 18:40

You can't short these on IG index now

[paulypilot] 01/8/2015 00:53

FCCN is 3 businesses rolled into one.

1. Profitable brand licensing operation.

2. Profitable wholesale operation.

3. Massively loss-making retail operation.

The investment angle here is that 3 above should be fixed as the shop leases expire (average length 4 years).

The company appears to have the balance sheet strength to easily survive 4 years, by which time most of the retail losses should have gone, as loss-making shops are handed back to landlords.

I appreciate that 4 years is beyond most trader/investor timescales, but for the patient investor, there is a good chance this share could pay off nicely.

In the meantime, the share price has been very poor of course.

I've no idea what will happen, but risk:reward looks quite reasonable, for people who take a long term view, in my opinion.

Regards, Paul.

[tmfmayn] 31/7/2015 11:45

Hi she-ra

FCCN is on course to record its 7th overall annual loss in the last 8 years.

Dividend will now go missing for a 4th year.

Last time Retail division made a £1m-plus profit was way back in 2005. Since then it has lost a cumulative £54m.

Compare and contrast with Ted Baker etc.

My idea is no more amateur than the current board's efforts.

More than happy for you to outline your own turnaround plan.

And ASOS investors have not needed bricks.

Mayn