Sell struggling branded fashion retailer French Connection (FCCN) ahead of a trading update next month. Shares believes a downbeat missive could drive further downgrades, leaving shares in the clothing-to-fragrances firmly out of favour.

With form in terms of profit warnings and usurped in popularity by other brands, French Connection is driving through store and product improvements following a review of its retail business. Encouragingly, the £29.7 million cap’s third-quarter update (21 Nov) did highlight an improving trend within the UK and Europe retail business. Like-for-like sales over the 16 weeks to 20 November were flat year-on-year.

Yet this performance was delivered only against soft comparatives, while discounts to shift older stock over the peak period could mean next month’s statement delivers margin-related gloom.

Numis Securities forecasts a swing from a profit of £4.2 million to £5.2 million in losses for the year to January 2013, on a 4.7% drop in sales to £205.5 million. These estimates could prove optimistic. Even for fiscal 2014, the house broker expects losses of £4.3 million. Deep value investors might be attracted to forecast January 2013 net cash of £25.1 million, which accounts for the bulk of French Connection’s market value, yet the turnaround remains tentative.

Shares says: We do not believe the downgrade cycle is finished. Sell French Connection at 31p.