French Connection remains in red

FCUKLoss-making fashion retailer French Connection has revealed that it is saddled with a number of underperforming stores that it cannot afford to close as it reported another sales slump.

The chain, which has 74 stores in the UK and Europe, is allowing the zombie outlets to stagger on because it would be more expensive to close them.

It made the disclosure as it unveiled like-for-like sales in its UK and Europe outlets down by 4.5% in the six months to the end of July, while pre-tax losses narrowed only slightly from £6.3 million to £6.1 million.

The company has been targeting a return to the black by 2015 and founder and chief executive Stephen Marks said there had been "considerable progress" - though it was handed a "must try harder" verdict by retail analysts.

Mr Marks said: "There is still obviously some way to go until we reach profitability. Performance in the UK has certainly not been helped by the overall market conditions which remain particularly volatile, but importantly we are on an improving trend."

The fact that one of Britain's best-known clothes retailers is operating a number of zombie stores will add to concerns about the state of the high street and other shopping areas. Recent figures revealed one in seven shops were vacant.

French Connection, which recently appointed new finance director Adam Castleton, closed four stores in its UK and Europe division during the period and plans to shut three more by the end of the year.

But Mr Marks revealed that further outlets had been granted a reprieve from the axe only because closures by other businesses meant that French Connection was unable to offload its shops without incurring further costs.

He said: "We will continue to consider further closures of non-contributing stores in the future when this is economically viable, but this effort is hindered by the current rental market in a number of the areas and other space available there due to closures by other businesses."

The group revealed that towards the end of this year it would look again at the costs of restructuring.

Mr Marks said a new team brought in last year had already achieved positive changes in in-store processes and staff management, reducing costs, while focusing on boosting sales.

Profit margins in the UK and Europe had improved thanks to more items being sold at full price and a shorter sales period, he added. Operating losses from the retail division in the region were down by £1 million to £8.2 million.

Mr Marks said: "Although it is early days in our turnaround, the underlying strength of the business and the significant global awareness of the brand, coupled with the changes we are making provide the foundations for continued improvement and give me confidence for the future."

The chain's online business continued to grow amid the introduction of a click-and-collect service and a re-launch for its website.

Wholesale revenue in the UK and Europe fell while in the US, the retail business's performance improved though wholesale did less well. Like-for-like sales and stores increased in joint ventures in Hong Kong and China.

Retail analysts Conlumino said the group had made efforts to reduce its reliance on the "discounting drug" to shift stock.

But they added: "While these results are, therefore, a step in the right direction, French Connection will have to work far harder if it is to swing back into profitability."