French Connection slumps to fifth consecutive annual loss

Listen to this article

00:00
00:00

Fashion chain French Connection, which has been under pressure from activist investors, has recorded a loss for the fifth year in a row.

Sales fell 6.7 per cent to £153m and pre-tax losses rose 51 per cent to £5.3m in the year to January 31. The company, which counts Mike Ashley’s Sports Direct as its biggest outside shareholder, had cash of £13.5m at year-end.

Stephen Marks, the founder and chief executive who owns 42 per cent of the shares, said its retail business was recovering but that it was held back by its licensing and wholesale divisions.

He said its Spring 2017 range was showing a “strong performance”.

Mr Marks said:

The noticeable improvement we have seen during the second half and into the new financial year leads me to believe that we are moving in the right direction. The reaction to this year’s collections has been very strong so far with sales both in our stores and wholesale customers up on last year.

It is early in the year and we have a considerable amount of work to do to take the Group back to profitability although I believe that the actions we have taken and continue to take, will go a long way to achieving that goal this year.

The brand rose to prominence in the 1990s with its edgy t-shirts sporting the word “fcuk” as part of various provocative slogans. However since then the company’s performance has waned and it has not turned a profit since 2012.

In September the company announced a loss for the first half, fuelling investor discontent. Gatemore, a US hedge fund that owns about 8 per cent of the company, has attacked the company’s corporate governance and strategy.

Commenting on the results, Liad Meidar, chief investment officer at Gatemore, said:

We are disappointed, but unfortunately not surprised, that French Connection have failed to improve on last year’s dismal results. The board is a mockery of modern corporate governance. With the resignation of Christos Angelides, there are no independent directors in place and the Chairman/CEO, Stephen Marks, is refusing to split his role and is running the business with no regard for shareholders.

We believe that French Connection should be broken up since the sum of its parts is around two to three times greater than the whole. The brand alone is worth, by our estimates, upwards of £84m, or 12 times annual licensing revenues of £7m. The retail segment is losing money, but these losses can be eliminated by accelerating store closures, including the sale of the Oxford Street lease. The wholesale business makes money and Toast has standalone value. By our estimates, the business should be worth between £80m-£100m. The Company clearly has a number of strategic alternatives available, and we would argue that the board is in breach of their fiduciary duty if they are not pursuing them.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.