The founder of French Connection today said the growing economic uncertainty was delaying a long awaited recovery at the fashion retailer as he reported half-year pre-tax losses of £3.5 million.

Stephen Marks, who set up French Connection in 1972 and is the company’s chairman and chief executive, insisted that the high street chain was making significant progress in key areas such as ladies’ wear.

However he said this had been offset by higher costs, the weakness of the pound, challenging wholesale markets and poor sales of men’s wear.

While group turnover rose by £3 million to £112.4 million in the six months to July 31, pre-tax losses widened from £2.5 million to £3.5 million. The losses would have been worse without a £1.9 million gain on a property deal.

The interim dividend was unchanged at 1.7p, handing Mr Marks a £680,000 payday through his 41.82 per cent stake in the business.

Mr Marks said: “Against the background of a significant downturn in our major markets, the performance of our retail business has continued to be encouraging, with a resilient overall sales and continued growth in our ladies’ wear division.

“In total, however, turnover has remained broadly flat, which when combined with increasing pressures on our margins and cost base, means our financial results for the first six months remain disappointing.”

He added: “In this difficult environment, we will continue to manage all elements of the business very closely to reduce costs where possible and to maximise every opportunity available to improve our performance.”

Analysts said there was now a real possibility that the dividend would be cut at the full-year results.

Philip Dorgan, retail analyst at Panmure Gordon, said: "The tough trading environment is not helped by rising costs, in particular for clothing businesses, and this is taking its toll on French Connection. We foresee losses at the pretax level for this year and next, and are assuming the dividend is halved."

Mr Marks conceded earlier this year that French Connection’s performance had not been good enough as he wrote off the immediate prospects for a revival at the group best known for its once iconic FCUK label.

Today he insisted that efforts to restructure the company’s design and merchandising teams had begun to pay off. Like-for-like sales of ladies’ wear in both the UK and the US were up 8 per cent in the six months to July 31.

However across the UK retail business as a whole like-for-like sales - which strip out the benefits of new store space - were unchanged.

Mr Marks said: “Our main aim is to build on the strong momentum within our French Connection ladies’ wear business and to mirror this success within our men’s wear business.

“Looking to the second half of the financial year it would appear that the economic environment is unlikely to improve in the short-term and that therefore any gains we make will have to be achieved through significant out-performance by our ranges.”

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