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Activist investor urges French Connection to break up
March 14, 2017 / 8:08 AM / 6 months ago

Activist investor urges French Connection to break up

A person walks past a French Connection store in London, Britain, 14 March, 2016. REUTERS/Hannah McKay

(Reuters) - An activist investor urged struggling British fashion retailer French Connection Group Plc (FCCN.L) to split itself or spin off its Toast brand, after the company posted its fifth straight annual loss on Tuesday.

Gatemore Capital, which has been mounting pressure on French Connection since July, said the company should consider separating its retail and licensing businesses among other options.

The investor urged the company in January to split the role of chairman and CEO and called for an outright sale.

French Connection, which made a name for itself selling FCUK branded clothes, has been struggling to fend off competition from fast-fashion rivals such as ASOS Plc (ASOS.L), Forever 21 and Inditex’s (ITX.MC) Zara.

Gatemore’s managing partner, Liad Meidar, said on Tuesday the firm would still prefer a sale of the company.

The investment firm, which owns an 8 percent stake, estimated French Connection to be worth 80 million-100 million pounds ($97 million-$121 million).

The company’s current market value is about 33.4 million pounds.

Apart from Toast, French Connection owns the Great Plains and YMC brands. The company was not immediately available for comment.

French Connection has closed stores and hired new management and design teams as it tries to return to a profit.

Chief Executive Stephen Marks reiterated on Tuesday his commitment to turn the group profitable and said the response to the company’s 2017 collections had been very strong.

Meidar said the company could turn a profit moving into 2018 or at least be on a run rate for profitability by then.

Brokerage Numis Securities said it expected the company to return to profit in the year ending January 2019.

British billionaire Mike Ashley’s Sports Direct International Plc (SPD.L) took an 11.2 percent stake in French Connection in February, becoming its second-largest shareholder. Sports Direct’s intentions were not clear.

French Connection said pretax loss widened to 5.3 million pounds for the year ended Jan. 31, from 3.5 million pounds a year earlier.

Sales at stores open for more than a year in the UK and Europe rose 4.4 percent. The two regions accounted for more than three-quarters of the company’s revenue.

Marks said the retail business in the two regions was improving, but the company was being held back by the wholesale and licensing divisions.

Full-year revenue fell 6.7 percent to 153.2 million pounds.

The company’s stock was up 6.8 percent at 35.56 pence in light trading.

($1 = 0.8247 pounds)

Reporting by Arathy S Nair and Rahul B in Bengaluru; Editing by Amrutha Gayathri and Saumyadeb Chakrabarty

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