French Connection considering putting itself up for sale

Fashion retailer French Connection confirmed on Monday that it is considering putting itself up for sale.

In a response to media speculation over the weekend, the company said it is currently reviewing all strategic options "to deliver maximum value for its shareholders", including a possible sale.

French Connection said there can be no certainty that an offer will be made for the company, nor as to the terms on which any offer will be made.

Sky News reported on Saturday that founder Stephen Marks was looking to sell his 42% shareholding and that advisor Numis Securities had approached private equity firms and other fashion retailers.

A 27% stake is owned by Sports Direct, which in July bought out activist investors, including Gatemore Capital Management and OTK, to add to a previous 11% stake. Dunelm Group founder William Adderley also owns a stake.

Russ Mould, investment director at AJ Bell, said: "French Connection has long been seen as a value trap – the business contains hidden value but ongoing problems with trading have seen the share price remain weak. A sale of the business could help to lift it out of the ‘trap’ as long as the suitor is prepared to invest some time and money in sorting out the bad bits and nurturing the good bits.

"It is easy to see why someone might be interested in buying the business, as long as they acknowledge there will be some turnaround work to undertake and that rewards may be further down the line.

"A potential buyer would have to have to look at the company’s leases and create a plan to streamline the estate of physical stores. It could seek to do more licencing deals as this is proving to be a resilient part of the business, so why not focus more attention here to accelerate growth? And there could be opportunities to make the wholesale business even larger.

"There could even be an opportunity to capitalise on French Connection’s brand awareness and revitalise the brand strength which it previously enjoyed in the 1990s."

Last Month, French Connection said its losses had widened in the first half amid difficult trading in the UK.

In the six months to 31 July, losses before tax widened to £15.1m from £5.9m in the same period a year ago as revenue fell 2.4% to £58.1m. On an underlying basis, however, losses narrowed to £5.5m from £5.9m the year before as it benefited from store closures.

The company said continued growth in wholesale, where revenues were up 6.2% to £30.8m, was offset by a reduced store portfolio and tough retail trading in the UK. Retail revenues dropped 10.5% to £27.3m, with a like-for-like sales decline of 7% for the UK and Europe. Meanwhile, licensing income was flat at £2.6m.

Still, the group said it was on track to return to profitability at the year end.

At 0930 BST, the shares were up 26% to 54p.