Stores group warns on profits

NIGEL COPE

Fashion chain French Connection became the latest in a string of stores groups to warn of lower-than-expected profits.

Shares fell 23 per cent to 223p when it said problems in the UK and the US would mean profits of only pounds 1m for the six months to July compared to the pounds 3m City analysts had been expecting. Analysts have downgraded full-year forecasts from pounds 8m to around pounds 4.5m.

French Connection chairman David Bernstein blamed job insecurity, weak housing market and unseasonal weather. He said: "When people are reluctant to spend, the weather is very important. People are in the shops, but are being selective."

He said the short-term outlook was also far from promising but hoped government measures such as possible tax cuts and stimulating the housing market before the next election could boost retail fortunes.

French Connection's warning follows recent profits warnings from House of Fraser, WH Smith, Etam and Sears and casts further doubt on retail recovery. Concern is mounting that the National Lottery, which takes pounds 100m a week, is dragging spending from stores groups.

The clothing market has been hardest hit by colder weather in April and May, with the recent hot spell too late for many. Many shops had already begun sales when the warmer weather started, meaning their highest levels of sales are being achieved at knock-down prices instead of full margin.

Julie Ramshaw, stores analyst at Morgan Stanley, said: "It's a bit like farming. Clothing retailers can't buck the weather trend." She added that much of the good weather had been mid-week rather than on Saturdays.When weather has improved, it has often been too hot to shop.

However, she pointed out that several retailers, including Next, Storehouse and Oasis, had reported booming figures in the last few months. Other retailers such as Monsoon, River Island and The Sweater Shop are also doing extremely well with well-focused merchandise.

George Wallace, of retail consultancy Management Horizons, said retailers such as House of Fraser and Etam had increased problems with confused offers and merchandise problems.