Good morning!  The market opened down heavily first thing today, but has since bounced back. I suppose the escalating situation in the Ukraine must be worrying everyone, but I cannot see why that should make me adjust my investment portfolio. So I'm not.




French Connection (LON:FCCN)

Rather annoyingly, fashion retailer French Connection has ignored the convention of issuing trading statements at 07:00, so that everyone has one hour to digest the contents before the market opens. Instead the company has issued a stonking trading update today at 08:39. The price shot up about 10% within seconds, and it is obvious why;


In the 11 weeks to 12 April 2014, UK/Europe Retail LFL's were up 11.0%, continuing the positive trend as our retail initiatives and improved product range continue to gain traction.


Given that this company has really struggled in recent years, a bounce back to an 11% increase in LFL sales is remarkable. Although they do go on to caution that the prior year comparatives were soft, at -4.5% for the equivalent period.

Even so, this completely transforms things. Thinking back to my days in ladieswear retailing, a sales increase of this magnitude means that your buyers have really hit the spot in terms of the fashions. That means you sell a lot more at full price, so there should be a double benefit from a higher gross margin, although today's trading statement says nothing about that.

I've done some very rough calculations based on last year's interim figures, and I reckon this should translate into additional H1 retail sales of about £5.1m, at a 55% gross margin that is £2.8m in additional profit. Add another 2% gross margin onto all UK/Europe retail sales (my assumption), and that adds another £1m. So that gives a possible improvement in H1 profitability just in the UK/Europe retail division of about £3.8m. Given that the group made an H1 loss of £6.1m last year, it looks as if a sharply reduced loss of about £2.3m for H1 is now on the cards. Add in some improvement from the other divisions, and they could be approaching breakeven for H1. That would be a very good result, as it's an H2 weighted year, so it's now a real possbiliity that FCCN could actually report a…

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