British fashion retailer French Connection reported a loss for the fifth straight year, prompting activist investor Gatemore Capital Management to suggest splitting up the company.
French Connection has closed stores and hired new management and design teams as it struggles to compete with fast-fashion rivals such as ASOS, Forever 21 and Inditex’s Zara.
However, chief executive Stephen Marks reiterated on Tuesday his commitment to turn the group profitable and said the reaction to 2017 collections had been very strong with higher sales in stores and to wholesale customers.
French Connection’s current position is a far cry from its heady days of 2004, when the huge success of its FCUK logo boosted the company’s shares to more than 500 pence. The stock has plummeted since, closing at 34.88 pence on Monday.
The company has been under pressure from Gatemore, which owns an 8 percent stake, to improve shareholder value.
French Connection should be broken up as the sum of its parts is around two to three times greater than the whole, Liad Meidar, managing partner and chief investment officer at Gatemore, told Reuters on Tuesday in an email.
Gatemore urged the company in January to replace two of its non-executive directors and to split the role of chairman and chief executive. The investment manager also said the company could alternatively look to engage an investment bank to explore a sale.
Last month, Mike Ashley’s Sports Direct took a 11.2 per cent stake in French Connection, becoming its second-largest shareholder, second only to Marks.
French Connection said underlying operating loss narrowed to £3.7 million, for the year ended January 31st, from £4.7 million a year earlier.
Sales at stores open for more than a year in the UK and Europe were up 4.4 per cent. The two regions accounted for more than three quarters of the company’s revenue.
Marks said the retail business in the UK and Europe was improving, but it was being held back by wholesale and licensing divisions.
French Connection’s full-year revenue fell 6.7 per cent to £153.2 million.
Reuters
