January 31, 2020 / 7:55 AM / 21 days ago

UPDATE 2-French Connection to go it alone after dropping sale plan

* Company drops sale plans

* Shares fall as much as 39%

* French Connection to focus on turnaround

* Co forecasts smaller annual pretax loss (Adds spokesman quote, turnaround details, shares, background)

By Tanishaa Nadkar

Jan 31 (Reuters) - Retailer French Connection abandoned plans to sell the business on Friday following a more than year long review, with its shares falling almost 40% after it said it will focus on a turnaround including shutting down non-performing stores.

The retailer, once known for its provocative FCUK brand of clothing and accessories, will also focus on growing its wholesale business in the United States, investing in its online platform, developing license arrangements and cutting costs.

French Connection, which has not posted a pre-tax profit since the year ended Jan. 31, 2012, announced the strategic review in October 2018, saying then that it was in talks with four interested parties regarding a sale.

Shares in the company were trading at 22.2 pence by 0936 GMT, having fallen as low as 20.6 pence, on track for their worst day ever and far from a peak of 502.2 pence touched in June 2004.

The retailer, whose brands include its namesake French Connection, Great Plains and YMC, has struggled to differentiate itself from rivals such as Inditex’s Zara, which offers a greater variety of clothes at lower prices.

Along with other British retailers like Ted Baker and Superdry, it has also faced subdued consumer demand brought on by political uncertainty related to Britain’s departure from the European Union, while brick and mortar retail is suffering from a shift to online shopping.

“UK trading in both the retail and wholesale businesses has been more difficult during the second half of the year, especially during the fourth quarter,” the company said.

TAKEOVER TARGET

French Connection said it thought it “was best” to continue as an independent company.

“We obviously spoke to a number of parties who were interested in buying the business but none of those came to a conclusion that we could accept was in the best interests of the stakeholders of the business,” a spokesman said.

French Connection said it expects to report an annual pretax loss of between 1 million pounds ($1.31 million) and 2 million pounds for the year ended Jan 31, having reported a pretax loss of 9.3 million pounds last year.

Founded by Chief Executive Officer and Chairman Stephen Marks in 1972, the company came under pressure from activist investor Gatemore Capital Management in 2017 to explore a sale, replace board members and split the role of the CEO and chairman.

Marks owns a 41.5% stake in the company, according to Refinitiv Eikon data, while Mike Ashley owned Frasers Group Plc — formerly known as Sports Direct — is the second-largest shareholder with a 26.1% stake. ($1 = 0.7608 pounds)

Reporting by Tanishaa Nadkar in Bengaluru; Editing by Shounak Dasgupta and Kirsten Donovan

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