Wholesale revenues rose by 6.2%, but store closures plus “tough retail trading in the UK” hit the bottom line — and like-for-like sales in the UK and Europe dropped by 7%. That latter figure is probably worse than many feared, and is likely to be part of the reason for a 7% share price fall in early trading.

French Connection also posted an underlying pre-tax loss of £5.5m, which is £0.4m better than the same period last year, though still not good.

But it’s not all bad, as the sale of Toast helped boost cash levels to £12.8m (from £6.7m a year previously). And the company reckons it “remains on track to return to profitability at the year end,” with chairman and chief executive Stephen Marks lauding “the changes we have made around the business over the last couple of years.”

Bargain?

If profit does return in the second half, it’s likely to be by only a small margin, which means forward fundamental ratios will be largely useless. So how should we decide whether to buy? It’s got to be a very subjective decision, but the fact that the share price has been holding up reasonably well over the past year makes me feel there could be a fair bit of confidence among investors.

Small-cap shares in troubled sectors are not my cup of tea due to the risk, but a full-year turnaround could be the platform for a positive 2019 for French Connection.

Sector expert

I’m again drawn to the company I see as one of the best in the business, the much larger Next (LSE: NXT). Despite the retail crunch, Next’s earnings per share have remained remarkably robust, having dipped by only 6% over the past two years, while the rest of the high street has been struggling. And the share price has held up well, too.

Even in 2018 when competitors are seriously under pressure, the City is expecting Next to put in a flat year for earnings — and is even predicting a return to EPS growth starting in 2019.

The firm’s most recent trading update reinforced that optimism and underlined the reason for it. Next’s full-price sales totals rose by 4.5% in the first half of the year, even though high street retail sales dropped by 5.3%. Online sales more than made up for that with a 15.5% rise.

Good balance

At the moment I think Next has probably got the sales mix just about right. Online selling really is the future of retail, but maintaining a healthy-looking high street presence is surely still important for keeping a brand alive and in the minds of shoppers.

I also like Next’s policy of returning cash to shareholders, with well-covered ordinary dividends yielding around 3%. On top of that, Next is such a good generator of cash that it paid a big special dividend last year and has been buying up its own shares.

The post Can this recovery stock beat the Next share price in 2019? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

While the stock market will always be forward looking, I can’t help but think that this feels like yet another overreaction from investors, particularly when the numbers contained in today’s latest set of full-year results are considered.

In the year to 27 January, group revenue rose 9.6% in constant currency to £591.7m. Once exceptional items are stripped out, pre-tax profit climbed 12.3% to £68.8m.

Broken down, retail sales in the UK and Europe rose 6.4% to a little over £301m, once foreign exchange fluctuations were taken into account. Sales in US and Canada fared even better with the company generating £120.1m — a rise of 12.4%. The biggest (percentage) growth, however, was seen in the company’s online business. E-commerce sales soared 39.8% to £101.1m.  

Given the above, it’s understandable that the total dividend was hiked by 12.1% (to 60.1p), continuing the trend for double-digit increases seen in recent years. While the majority of Ted Baker’s current owners are unlikely to be too concerned with generating income at the current time, this kind of confidence on the part of management shouldn’t be dismissed.

With new stores and/or concessions planned in Europe, US, Mexico and Japan, not to mention ongoing investment in its e-commerce offering, 2018 looks like being another busy year for the £1.3bn-cap. Although no company in this industry can afford to take anything for granted, it’s interesting to note that it is already predicting “high single-digit sales growth” at its wholesale business. So long as retail sales remain healthy, I can’t see investors abandoning the stock for long.

All told, I’m tempted to think that today’s dip provides a decent entry point for those who already had the stock on their watchlists but were concerned over the company’s relatively high valuation. 

Return to profits

Up until very recently, the performance of shares in fellow fashion retailer French Connection (LSE: FCCN) was pretty uninspiring. All that changed earlier in March following the release its latest full-year results.

In the 12 months to the end of January, the company saw group revenues rise 0.5% to £154m. Although retail revenue dipped 5.5% (or -6% at constant currency) to £83.1m, sales at its wholesale business climbed 8.6% to £70.9m. Elsewhere, e-commerce revenue grew by 3.1%.

As a result of its “ongoing portfolio rationalisation“, chairman and CEO Stephen Marks said the business had made “considerable progress” over the last year and was now “very close” to becoming profitable again. The company revealed an underlying operating loss of £600,000 — an improvement of £3.7m in the previous year. Cue a 75% rise in the share price.

Can French Connection continue this form? With spring orders apparently “well ahead of this time last year“, it’s not out of the question. Following last year’s unsolicited approach from a “a third party in the US“, there may even be another bid for the company at some point. 

Nevertheless, I’m comfortable sitting on the sidelines for now, given the uphill challenges still facing the company, the lack of dividends and ongoing concerns over the health of the UK retail market. 

The post Why I’d buy this top quality growth stock over this turnaround contender appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Ted Baker plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Its share price has climbed 15% in the past two months alone, taking gains since the turn of 2017 to 24% and resulting in it currently sitting atop record peaks above £19.30 per share. And despite these chunky rises the company still carries pretty decent value, in my opinion.

In the year to August 2017 the London firm is predicted to have delivered a 7% earnings improvement. And it is expected to follow this up with a similar bottom-line rise in the present fiscal period, resulting in a forward P/E ratio of 17.6 times.

While this reading perches above the widely-regarded value watermark of 15 times, I reckon a stock with as strong an earnings record as Smiths — not to mention the brilliant profits potential of its expanding international base — merits this slight premium.

Foreign favourite

Indeed, investors need to consider the brilliant progress Smith’s Travel division is making. The company noted last month that the unit “continues to deliver a strong performance with good sales across all of our channels and our new store opening programme both in the UK and internationally is in line with our plan.”

And the newsagent is splashing the cash to latch onto the brilliant sales opportunities of these overseas markets. It noted recently that “we continue to see further opportunities in the international news, books and convenience travel market,” and this is hardly a surprise given that air passenger numbers are expected to keep on booming in the coming decades.

With the company also working hard to improve profitability at its High Street operations through stringent cost-cutting and margin improvement, and plans to integrate Post Offices into its stores also impressing, I reckon there is plenty to get excited about over at Smith’s right now.

Not quite there..?

I’m afraid my optimism for WH Smith doesn’t extend to fellow retail play French Connection (LSE: FCCN), however.

The fashion firm has been lossmaking for many years now, and City analysts do not expect the business to flip into the black just yet — losses of 1.4p per share are forecast for the period ending January 2018.

And while the Square Mile expects French Connection to finally flip into the black with earnings of 0.4p in fiscal 2019, I for one retain a cautious view when it comes to current projections.

The Camden-based business announced today that operating losses before tax narrowed to £5.7m between February and July from £7.9m a year earlier. And chairman and chief executive Stephen Marks commented that “we have definitely seen momentum build in the first half of the new financial year with improvements across all the divisions despite difficult trading conditions.”

However, French Connection still saw sales in the UK and Europe flatline in the period, and this could persist as the rising pressure on Britons’ wallets look set to persist amid rising inflation and stagnant wage growth. So while the company’s self-help plans are helping to improve performance more recently, I reckon it could remain a hard ask to expect it to report profits any time soon.

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Royston Wild has no position in the shares mentioned. The Motley Fool UK has recommended WH Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

At first glance the results are hardly reason for fanfare, however. It announced a fifth successive year of losses in the year to January 2017, with pre-tax losses rising to £5.3m last year from £3.5m previously.

The fashion giant saw group revenue slump 6.7% last year to £153.2m, with troubles at its wholesale and licensing divisions — allied with the impact of store closures — weighing on the top line.

French Connection slashed average selling space by 11.7% in 2016 and has shuttered an additional two stores since the close of the year, with an additional eight on the chopping block for 2017. The company aims to have just 30 outlets up-and-running by 2019.

British bothers

Chief executive Stephen Marks commented that the “noticeable improvement we have seen during the second half and into the new financial year leads me to believe that we are moving in the right direction.”

And Marks also noted that “the reaction to this year’s collections has been very strong so far with sales both in our stores and wholesale customers up on last year.”

But there is still a lot of uncertainty surrounding French Connection’s ability to snap back into the black. Not only does the company’s transformation drive have much more heavy lifting to be achieved, but increasingly-difficult trading conditions in the UK could hamper demand for its clothes and accessories in the months ahead.

French Connection sourced more than 75% of total revenues from its home market last year.

Foreign favourites

The prospect of rising inflation having a devastating impact on French Connection in fiscal 2018 and potentially beyond would therefore push me towards retailers with a greater foreign exposure.

And in this regard I believe FTSE 250 stars Supergroup (LSE: SGP) and Ted Baker (LSE: TED) could be considered superior picks.

Supergroup sources around 40% of total revenues from the UK and Ireland, and is embarking on an ambitious global expansion drive to help it meet surging foreign demand for its lines. Indeed, the Superdry owner opened 67,000 square feet of net new retail space in Europe and the US during May-October alone.

And these measures are paying off handsomely. Supergroup’s sales to European customers rose 62% during the first fiscal half, for example, and by 56% to its other overseas shoppers.

And Ted Baker sources around half of sales from the UK and Europe combined, although as its retail expansion shows, it is also plugging away to boost its presence in North America and Asia to drive future growth. And with good reason — sales in these territories shot 18.8% and 6.5% higher at constant currencies during the six months to August.

Ted baker has 470 stores and concessions spanning the globe, only 186 of which can are located here in Britain, and with recent openings in China, Bahrain and Indonesia. 

The City does not expect French Connection to report profits any time soon, and has chalked-in another pre-tax loss of £3.1m for financial 2018 alone. By comparison Supergroup and Ted Baker are anticipated to record earnings rises of 17% and 14% respectively in their current fiscal periods, with further double-digit rises pencilled-in for next year.

I reckon the sheer amount of hard work French Connection must still undertake to get profits chugging again makes it a much less-attractive selection than the likes of Supergroup and Ted Baker.

The post Is this small-cap fashion stock a better buy than its FTSE 250 peers? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Supergroup and Ted Baker plc. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The company saw like-for-like sales rise 3.3% during February-July, to £5.75bn, it advised today, a result that drove underlying pre-tax profit 13.5% higher to £436m.

Spectacular sales growth at its Screwfix fascias gave particular reason for cheer, with total sales here leaping 14.4% on a like-for-like basis during the first half. This pushed total underlying sales from the UK and Ireland 6.7% higher, to £2.61bn, with like-for-like takings at Kingfisher’s flagship B&Q brand also rising 4.6% in the period.

There was a fly in the ointment however, with underlying sales in Kingfisher’s other key marketplace of France dipping 1.6% during February-July because of wet weather and industrial action in the second quarter.

Still, the screw and shed specialist’s ability to dodge the worst of the Brexit fallout has rightly dominated the headlines, as has the success of Kingfisher’s ongoing transformation strategy. The business has now shuttered 52 of the 65 B&Q stores scheduled for closure, and costs related to its five-year restructuring plan are expected to come in lower than expected for fiscal 2017.

While today’s update is certainly encouraging, I believe investors should remain cautious on Kingfisher’s revenues outlook in the months and years ahead as retail industry data remains patchy at best.

So while the firm’s forward P/E rating of 16.2 times may be reasonable on paper, I believe Kingfisher isn’t yet out of the woods and won’t be taking the plunge myself just yet.

French toast?

Fashion play French Connection (LSE: FCCN) hasn’t fared so well in Tuesday’s session however, a disappointing trading update providing fresh fuel for existing investor jitters. The stock was last down 6% on the day.

French Connection advised that more store closures pushed retail revenues 8.7% lower between February and July, to £69.2m. This kept French Connection firmly in the red with pre-tax losses of £7.9m, matching the result of the corresponding 2015 period and a result that chairman and CEO Stephen Marks described as “disappointing.”

The clothing seller’s turnaround strategy is still failing to make a tangible difference to the bottom line. And marketplace problems across the retail sector look set to keep French Connection under pressure — the firm noted “tough trading conditions on the UK High Street” during the first half, and that “we have continued to see this trend in retail in the early part of the second half of the year.”

City analysts aren’t expecting French Connection to bounce back into the black any time soon, given the huge amount of work the firm still has to achieve and intense competitive pressures. I believe investors should continue to steer well clear at the present time.

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A combination of store closures and poor sales during the first half of last year means that sales fell by 8% to £164.2m.

On the bright side, French Connection said that first-half losses were reversed in the second half, which was profitable. Licensing revenue rose by 12% to £7.3m and gross margin remained flat at just over 46%. French Connection ended the year with net cash of £14m, down from £23.2m the previous year.

This stock’s appeal as a turnaround play has been based on two factors. Firstly, French Connection has always had a strong balance sheet with net cash. This has given the firm time to turn itself around.

Secondly, the firm’s results have consistently suggested that its brand and products remain popular. The problem has been that its network of retail stores is costly and loses money.

The argument in favour of investing in French Connection is that as the retail network is scaled back, the firm will become profitable again thanks to strong wholesale and licensing revenue. Last year’s fall in wholesale revenue was disappointing, but the second-half recovery is encouraging and suggests the story remains strong.

On balance I think this investment story remains valid, but is weakening. French Connection’s turnaround has already taken several years. Cash is beginning to run low, so definite progress will be required this year.

Better alternatives?

Value investors prefer to buy cheap, beaten-up stocks, but there’s a case for paying more to buy shares in companies that are proven performers.

In the fashion sector, two good examples are Ted Baker (LSE: TED) and Boohoo.Com (LSE: BOO). Both companies have clear growth plans and are highly profitable.

Ted Baker’s sales and profits have risen by around 20% per year since 2010. Boohoo has managed to increase its sales by an average of 55% per year since its foundation in 2011. Boohoo’s profits have also risen strongly. Earnings per share are expected to have risen by 34% to 1.1p in the 2015/16 financial year, which ended on 28 February.

Naturally this kind of performance comes at a fairly high price. Boohoo trades on a 2015/16 forecast P/E of 36, falling to 28 for 2016/17. There’s no dividend, but Boohoo does generate a lot of cash and had a net cash balance of £60m at the end of August.

Ted Baker also looks quite pricey. The shares currently trade on a 2016 forecast P/E of 28, dropping to a P/E of 24 for 2016/17. There’s also a 1.7% forecast dividend yield.

If Ted Baker and Boohoo continue to grow at current rates, then in a few years’ time, both stocks could look very cheap at today’s prices. Both companies are in good financial health and appear to have strong management.

Whether they’re cheap enough to buy today is up to you.

The post Do Today’s Results Make French Connection Group A Better Buy Than Ted Baker plc Or Boohoo.Com PLC? appeared first on The Twelfth Magpie.

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Of course, French Connection’s near-term outlook is rather disappointing. It is expected to report a loss for its financial year just ended, while a further loss is forecast for the current year. However, investors may be feeling positive about French Connection’s price to book (P/B) ratio of just 0.9, which indicates that an upward rerating could be on the horizon. And with a cost reduction and store closure programme apparently on-track, margins at the company could be due for an improvement.

However, with there being a number of other retailers that are highly profitable and that trade on appealing valuations at the present time, it may be prudent to watch rather than buy French Connection right now.

Also rising sharply today is digital audio platform Audioboom (LSE: BOOM). Its shares are up by around 7%, and this week has been a rather positive one for the business, with it having been selected by Google to be a content provider for its Google Play application in the US. Audioboom was the only non-US partner chosen among ten others and this bodes well for its long term profit potential.

Clearly, Audioboom is a relatively high-risk business, being relatively small, and therefore it may only be of interest to less risk-averse investors. However, with Audioboom set to move into the potentially lucrative Indian market via a partnership with film company Eros, it could be a stock to watch in 2016.

Shares in W Resources (LSE: WRES) have also been among the major movers today, falling by around 5%. That’s despite the company releasing a positive update with regard to its mineral resource estimate at its La Parilla project in Spain. In fact, the total resources estimate for La Parilla has increased to 51m tonnes, which represents a rise of 16% in tungsten trioxide and a 29% increase in tin. Importantly, the quality of the resource definition has also increased, which is clearly positive news for the company’s investors.

With W Resources forecast to post a pretax profit in 2016 following five years of losses, investor sentiment in the company could begin to improve. Certainly, it remains a relatively high risk mining play and with there being many other profitable stocks within the same space offering low valuations, W Resources may have standalone appeal to less risk averse investors, but it could be worth looking elsewhere due to the relative attraction of its peers.

The post Should You Buy These 3 Major Movers? French Connection Group, W Resources PLC And Audioboom Group PLC appeared first on The Twelfth Magpie.

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Lonmin

Lonmin shares seem to have settled at around 1.2p, following the firm’s recent rights issue. This price was the theoretical ex-rights price for the firm’s stock, based on a pre-rights issue price of 10p.

This is relatively good news for shareholders. If Lonmin’s shares had fallen dramatically below 1.2p, this would mean that the rights issue had failed to stop the share price falling.

Lonmin shareholders are now in an interesting position. The company has minimal debt and has committed to cutting costs to make the company “sustainable and viable”.

The City has turned more positive on the firm over the last month. Broker forecasts for 2016/17 have risen sharply and suggest the firm will make a post-tax profit of $20m next year.

However, I think that shareholders need to be cautious. These forecasts could be based more on hope than reality. After all, many of the analysts producing these forecasts work for institutions who will have been involved in the rights issue, either as advisers or investors. It’s not in the City’s interest for Lonmin shares to collapse again immediately.

During the year ending 30 September, Lonmin’s production costs fell by 24%. The firm is promising more cuts but we don’t yet know whether it can generate positive cash flow at current platinum prices.

However, if Lonmin’s restructuring is successful, then I think the shares could easily double in value quite quickly.

French Connection

French Connection shares rose by 21% this morning, after the firm reported strong sales of its winter collection. The group remains a turnaround investment, but today’s update could be a sign that shareholders may be rewarded for their patience in 2016.

Like-for-like sales rose by 0.2% during the last quarter, compared to a fall of 6.1% during the same period last year. Gross profit margin was 1.5% higher than last year, thanks to an increase in the level of full price sales.

There was good news elsewhere, too. French Connection’s licensing agreement with DFS for furniture sales has been extended for another five years.

Best of all, perhaps, the firm has managed to close another seven loss-making stores and will receive a £2.4m compensation payment when it vacates its Regent Street store in London in March.

This is a significant step towards dealing with the company’s biggest problem, its loss-making chain of shops. French Connection clothes are sold through its own stores and wholesale to other retailers. The wholesale division is profitable, but the retail division is not.

Many of the firm’s shops are tied into costly long-term leases. Exiting these and focusing on profitable wholesale and licensing sales is the key to the group’s recovery. Today’s figures suggest that real progress is being made in this area.

In the meantime, the shares remain backed by net cash and trade at a 25% discount to book value, even after today’s gains. In my view, French Connection shares could easily double over the next few years, as the firm’s transformation continues.

The post How French Connection Group And Lonmin Plc Can Double In 2016! appeared first on The Twelfth Magpie.

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The company develops variable transmission systems for vehicles, emissions reduction and fuel efficiency technology, which would be a significant energy saver in these critical times of global warming — and it’s an example of the great British engineering tradition. The problem is, it’s been a very long road between drawing board and commercial success, and the company has been burning cash for years — and it’s needed a £12.4m share placing already this year.

Foecasts suggest Torotrak could be very close to break-even by the year ending March 2017, and there’s surely a possibility of profit the year after — but as recovery situations go, this one still looks too risky to me.

The world of fashion is a very risky one too, as French Connection Group (LSE: FCCN) shareholders know to their cost. The high-street chain has seen its share price lose two-thirds of its value since May 2014, to just 30.5p today, after the company recorded further ongoing losses at its interim stage this year — in fact, the shares fell 8% on results day itself as disappointment grew in line with the firm’s increasing losses.

The question is, with the firm restructuring and trying to reshape itself as a smaller but fitter business, could this be time to buy in the hope of a share price recovery? Well, French Connection has no debt — in fact, it was sitting on net cash of £23.2m at the halfway stage. So it doesn’t seem to be in any danger of going under in the near term. Investing in loss-makers in the hope of recovery is not my style, but if it is yours then you might be well advised to wait and see how Christmas trading goes this year.

Ruspetro (LSE: RPO) has suffered from the double-whammy of being a loss-making oil explorer at a time when oil prices have been plunging, and operating in Russia when that country’s international status is being steadily downgraded to pariah levels. The result has been a 90% fall in the share price in a little over two years, to just 4.3p today.

At the interim stage we heard that average daily production had risen by 16% to 3,914 bopd, though revenues fell from $27.8m to $24m in the period due to the oil slump. It sounds like the company has sufficient funding in place to be reasonably safe in the short term, and if an oil price recovery comes along in time it could be a nice recovery prospect — but for me, there really are some considerably less risky oil explorers out there if that’s what floats your boat.

The post Can Torotrak plc (-82%), French Connection Group (-67%) & Ruspetro PLC (-90%) Ever Pull It Back? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Although French Connection had flagged the difficulties it was experiencing back in its April trading update, today’s results are nevertheless disappointing for its investors. Revenue in the period fell by 9.8% and, while underlying operating expenses were cut by an impressive 1.4%, such a drop was not enough to offset the challenging top-line performance of the business.

Looking ahead, French Connection is attempting to turn its fortunes around. For example, it closed six stores during the first half of the year and expects to close more in the remainder of the year. In addition, its Licensing division continues to offer solid performance, with year-on-year sales growth of 3.4%, while its lack of debt and healthy cash balance of £15m means that it has a relatively large amount of breathing space from which to conduct a successful turnaround.

Meanwhile, the company has stated that its trading since the half year results period has been improved, with like-for-like sales across UK and Europe being flat, with gross margins being up on last year. However, for the full year it is expected to remain a loss-making entity and, looking ahead to next year, is due to see its pretax loss widen. As such, investor sentiment could decline and put the company’s share price under further pressure over the short to medium term.

Of course, French Connection, as with most retailers, is highly dependent upon the Christmas period and strong trading during this time could be a positive catalyst to push its share price higher. And, while its Spring collection proved to be a major disappointment, its Winter collection appears to be performing much better and could realistically surprise on the upside. Furthermore, with French Connection having a price to book value (P/B) ratio of just 0.5, there is considerable potential for an upward rerating if its financial performance is better than expected by the market.

However, with many of its retail peers delivering improved performance in recent months and years, there appear to be better options elsewhere for investors seeking retail exposure. That’s not to say that French Connection will fail turn its business around, but rather that there are more appealing risk/reward opportunities available within the retail industry.

Certainly, French Connection could, in the long run, become a smaller, more efficient and profitable business but, as today’s results show, there is a considerable amount of work to successfully complete before then and, in the meantime, further share price falls cannot be ruled out. As such, it seems to be a stock worth watching, rather than buying, at the present time.

The post French Connection Group Sinks 8% On Results: Is Now The Perfect Time To Buy? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.