Troubled French Connection to close another six stores as losses widen to £5.3m
14 March 2017
Struggling retailer French Connection continues to fall out of fashion, posting another loss and announcing plans to close six stores as it battles tough high street conditions and comes under heavy fire from investors.
The group, best known for its FCUK merchandise, said pre-tax losses widened from £3.5 million last year to £5.3 million, while revenue slumped 6.7% to £153.2 million.
French Connection said it had closed nine under-performing stores last year and a further two since February, with six more on the block.
The company has 53 standalone stores across the UK and Europe but wants to trim this to 30.
To compound matters, activist investor Gatemore Capital Management has called for a break-up of the company, accusing the board of representing a "mockery of modern corporate governance".
Gatemore again took aim at under-fire chairman and chief executive Stephen Marks, calling for him to relinquish his double role.
Liad Meidar, managing partner 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."
Other investors, such as OTK and Zoar Invest, have also called for boardroom change and an acceleration of the store closure programme.
For his part, Mr Marks said: “We have seen an improvement in performance over the financial year with continued good progress in the UK/Europe retail business, but, as previously reported, this has been partly held back by the wholesale and licensing divisions, particularly in the first half of the year.”
Mr Marks, who launched the business 44 years ago and holds a 41% stake, has struggled to revive French Connection’s fortunes following the rise of fast-fashion brands such as ASOS and Zara.
But Mr Meidar added: “The brand alone is worth, by our estimates, upwards of £84 million or 12 times annual licensing revenues of £7 million. The retail segment is losing money, but these losses can be eliminated by accelerating store closures, including the sale of the Oxford Street lease.
“By our estimates, the business should be worth between £80 million and £100 million. 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.”
Mike Ashley’s Sports Direct has also added to Mr Marks’ headaches, snapping up an 11% stake in French Connection and raising fresh questions over the chain’s future.
The maverick billionaire made his share raid in February after fund manager Schroders dumped a 9% stake, with Mr Ashley acquiring an additional 2% on the open market.
Nick Ansell/PA Wire