French Connection: He Chaired The AGM Wearing A T-Shirt And Jeans

Me again.

I attended the French Connection AGM on Thursday 15th May.

Among ordinary shareholders, seemed it was just me and just one other.  But there was a few PR types and a chap from the Daily Mail present and possible a broker or two.  Quite a few staff members present as well, to ensure the necessary hands went up with the resolutions.

An odd-ish AGM, where founder and major shareholder Stephen Marks (SM) — looking nicely tanned and wearing a t-shirt and jeans — went through the motions with the resolutions, inviting questions on certain ones (all to no response), and then ending the meeting. So no formal questions from the floor either during or after the resolutions.

But us ordinary investors did get to speak to the FD and the COO at length after the meeting, although sadly SM was busy with the Mail hack, then left. It would have been nice to speak to SM, too.

The AGM statement hit the share price, but the lower LFL sales was explained by not having a Spring sale this year due to a stronger product line up. That is, FCCN had no need to sell off the wrong product at cut-prices as it had to do last year.

So sales were lower in the comparable 2-week, 2-day sales period this year, but gross margins should be much higher. Executives were understandably cagey on just how the bottom line had performed to date this year, but I was encouraged the AGM statement was expecting an in-line breakeven performance this year with nine months still to go  (and the all-important Xmas season).

I touched upon UK retail estate and leases. Average UK lease is 5 years long and renewals are at 10 years max with 5-year break. Of the 90 UK stores, 15% are profitable. Then there is a large number that bob about and make small profits/losses from year to year, while about 10 make consistent losses. Most of the loss-makers should be closed within 3-5 years as the leases come up for renewal. All told the lease situation does seem to have improved from what I recall was the case a few years ago.

Apparently SM is still motivated at age c68 and remains able to pick out designs that should become big sales winners. Problem in last few years has been not having the right designs for SM to pick what could work in the shops. But a new-ish appointment from Top Shop has brought some added skills and talent and she seems to be delivering the designs SM thinks can be winners.

Way forward is to improve operational execution (great execution has been foundation of Ted Baker’s progress) and improve sales densities. Executive talk was of wanting to return to respectable levels of profitability and 10% operating margins.

Questions of FCCN ever becoming a £1bn company (not my questions!) were met with some raised eyebrows, but the COO did seem to suggest sales of £220m and margins of 10% was a target for 3 years.

I mentioned a recovery back to margins of 10% were cited on a City presentation 3 years ago. Reply admitted the business had suffered since, but undergone restructuring with the Fahri chain going etc, and the design eyes had been taken off the ball.

All told a useful meeting and the executives (bar SM) had plenty to say after the meeting. Would have appreciated SM hanging around for longer, but it’s clear who is in charge here and shareholders have to take that into account.

I hope you found this useful