September 19, 2017 / 7:51 AM / a year ago

UPDATE 2-UK fashion chain French Connection racks up narrower loss

(Adds analyst quote, updates shares)

Sept 19 (Reuters) - British fashion retailer French Connection Group Plc reported a narrower operating loss for the first half and said it was making progress in its attempt to return to profitability.

The owner of the Toast, French Connection and Great Plains brands has been struggling to fend off competition from fast-fashion rivals, such as ASOS and Inditex’s Zara. It has closed stores and hired new management and design teams as it tries to turn the corner.

In March activist investor Gatemore Capital urged the loss-making company to split itself or spin off its Toast brand, among other options. It offloaded its entire stake in July, saying it was not satisfied with the pace of change at the 45-year old retailer.

British billionaire Mike Ashley’s Sports Direct International currently holds a 27.04 percent stake in French Connection and is the second-largest shareholder in the company. Sports Direct’s intentions were not clear.

French Connection said its group operating loss for the six months to July 31 came in at 5.7 million pounds ($7.71 million), down from 7.9 million in the prior year.

But revenue came in at 68.1 million pounds, down from 69.2 million pounds year ago. The company closed seven stores over the last 12 months, reducing its trading space by 10.2 percent. It has 349 branded locations in total.

Sales at stores open for more than a year in the UK and Europe were “broadly flat”, it said on Tuesday.

However, revenue at its wholesale operation rose 7.2 percent to 29.6 million pounds, with the business returning to growth in UK, Europe and North America.

“We have definitely seen momentum build in the first half of the new financial year with improvements across all the divisions despite difficult trading conditions,” Chairman and Chief Executive Stephen Marks said, admitting that there is a lot to do before company returns to profitability.

French Connection posted its fifth annual loss in a row in March.

Analysts at Numis Securities, which acts as broker to the company, expect the company to return to profit in 2019, citing the store rationalisation programme and tighter cost controls.

French Connection’s current position is a far cry from the heady days of 2004 when the huge success of its FCUK brand boosted the company’s shares to more than 500 pence.

The stock has plummeted since and was trading 2.3 percent lower at 44.12 percent by 1315 GMT. ($1 = 0.7393 pounds) (Reporting by Rahul B in Bengaluru, editing by Louise Heavens)

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