* Run of pretax losses continued in first half
* Shares drop 9.4 percent; down 90 pct from 2004 highs
* Activist investor calls for more store closures
(Recasts, adds investor, analyst and COO comment, share price)
By Rahul B
Sept 20 Activist investor Gatemore Capital
Management has urged French Connection to speed up its
store closure programme after Tuesday's first-half results
showed another pretax loss for the British fashion retailer.
French Connection has failed to post annual pretax profit
since 2011/12 and its shares have tumbled 90 percent from 2004
highs, prompting it to close stores and hire new management and
design teams as it tries to fend off competition from
fast-fashion rivals such as ASOS, Forever 21 and
Yet Gatemore, which holds about an 8 percent stake in French
Connection, is unhappy with the pace of change and said that the
retailer should reduce its portfolio to 30 stores in the UK and
Europe by 2018.
French Connection operates 69 stores across UK and Europe,
having closed five of its weaker outlets in the six months to
July 31. The UK and Europe region accounted for 74 percent of
the company's sales in the year to Jan. 31.
"With over four years of consecutive losses, the retailer's
turnaround has not gone far enough: the rate of store closures
needs to increase and margins need to improve," Gatemore said in
a statement on Tuesday.
French Connection declined to comment on Gatemore's
statement but said it was holding talks with the shareholder
The company's current position is a far cry from the heady
days of 2004, when its share price stood at more than 500 pence,
aided largely by the huge success of its FCUK logo.
Its turnaround efforts helped the retailer to post positive
first-half like-for-like sales in the UK and Europe for the
first time since July 2014, but losses from wholesale and
licensing business continued to drag on profit.
Its pretax loss of 7.9 million pounds ($10.2 million) in the
six months to July 31 was unchanged from the same period last
year, sending the company's shares down 9.4 percent to close at
Broker Numis has a "buy" rating on the stock and said in a
client note that French Connection had made progress despite a
difficult market for British clothing retailers. It cited
improvements across the business, particularly in design.
Gatemore has previously urged French Connection founder
Stephen Marks, who owns nearly 41.5 percent of the shares, to
give up his dual role as chairman and CEO.
Chief Operating Officer Neil Williams said on Tuesday that
the board had openly engaged with Gatemore but is not focusing
on splitting the founder's role.
"We are in middle on a turnaround here and we dont want to
do anything that potentially disrupts it at this point in time,"
($1 = 0.7718 pounds)
(Editing by Mark Potter and David Goodman)