Ailing French Connection slims down

FASHION retailer French Connection revealed deepening yearly losses yesterday and unveiled plans to sell off its loss-making Nicole Farhi brand and put up the shutters at most of its United States arm.

French Connection has previously exited businesses in Japan and northern Europe, and the latest retrenchment comes as the group announced losses that came in a shade under 25 million for the 12 months to the end of January.

That sum was substantially worse than the 16.4m loss in the previous year.

French Connection, which ended the year with net cash of 36m, slashed its full-year dividend to 0.5p a share from 1.7p the year before. This year's pay-out will cost the group about 500,000.

Meanwhile, the firm tried to deflect rising speculation that the latest restructuring might lead Stephen Marks, its founder, chairman, chief executive and 42 per cent shareholder, to take the company private.

Neil Williams, the group's chief operating officer, said: "We are a plc at the moment, there's no indication that we're not going to be a plc, but there's no certainty in anything."

French Connection said it was selling Nicole Farhi to US private equity firm OpenGate Capital for up to 5m.

It will also close about 17 US stores at a cost of 6.5m, cutting its retail presence across the pond to about six stores.

Marks commented: "We have had to make some tough decisions, but (they leave] us with a continuing business that we expect will be both profitable and cash generative, even in the current difficult economic environment."

Those businesses that it has decided to keep made an operating profit of 1.3m on a 1 per cent rise in revenue to 200.3m. Like-for-like sales at UK and European businesses that are being retained rose 2.8 per cent.

Williams said trading since the year-end had "continued in a similar manner, with a small improvement in menswear". French Connection said forward orders for its UK and European wholesale business for winter 2010 had risen.

On the stock market, the restructuring news saw the company's shares jump 14.3 per cent to 47.65p before later settling at 46.75p.

Before yesterday's update, the stock had fallen 23 per cent over the past six months.

According to the City, French Connection's star had waned well before the economic downturn as the popularity of its Fcuk branding had dropped and it sought to reposition itself.

However, Freddie George, retail analyst at Seymour Pierce, said the restructuring would reduce French Connection principally to a UK retail and wholesale business, which "should be profitable in 2010-11".