Fears for French Connection

SHARES in former high-flying fashion group French Connection's slumped today after it warned that profits will be as much as £10m below City expectations.

Chairman Stephen Marks described trading on the High Street as 'very tough' and 'difficult' in its second profits warning in eight months. News that profits will be about a third lower than expected sent the shares diving 27p or 10% to 240p, their lowest for two years.

French Connections shares dived 26p, or around 10%, to 241p in early trade.

After the CBI said yesterday that sales volumes on the High Street had recorded their sharpest falls for 22 years, Marks today admitted: 'French Connection is not immune to this. We are encouraged by our strong collections but the High Street is very tough at the moment.'

He added that although the group still hoped for an improvement in trading in the autumn 'from our stronger ranges', the board now expects pre-tax profits for the year to next January to be between £20m and £25m. That is well down on the £32.5m last year, which was itself 15% below the previous year.

Analysts had pencilled in pretax profits ranging from £29.5m to £34.5m before today's shock warning. Numis's Iain McDonald said French Connection had failed because it is neither cheap enough to compete with Zara, H&M and Top Shop nor distinctive enough to charge premiums like Ted Baker.

Marks, who is already under fire for being both chairman and chief executive as well as 42% shareholder, told the annual meeting two months ago: 'We remain hopeful that we can return to growth this financial year.'

French Connection today said: 'There has been no significant change in our trading since then.' It now expects to report an 11% decline in like-for-like sales in its UK and Continental stores for the first half year to the end of July.

For the second half, it said it was 'now budgeting only a small rise' in like-for-like UK and European sales through its stores. These account for slightly over half of group sales. The rest come through concessions in department stores.

Wholesale repeat orders for its summer collections have been very low as UK concessions failed to shift stock. That has had a knock-on effect on orders for the winter collections, which start shipping this month and next and are now expected to be 10% lower than last year.