Opinion: Can French Connection find a buyer?

French Connection has dragged out a possible sale of the business – for the second time this year – extending the process for another three months in light of ongoing discussions with “several interested parties”.

Even serial shopper Mike Ashley hasn’t pounced on the retailer yet, despite his high street buying spree and the fact he already controls a 27% stake in the business. That has helped fuel concerns that the “several” potential buyers are pretty lukewarm about a deal, or that price may be proving a sticking point.

“Just five years ago the retailer was generating sales of £190m and was worth almost double what it is today”

Most famously known for its tongue-in-cheek ‘fcuk’ logo emblazoned on young people’s T-shirts in the noughties, French Connection’s offering has now lost its way as those once loyal, rebellious customers have grown up.

But founder and chief executive Stephen Marks remained bullish about prospects following this week’s half-year results and said he is “pleased” the changes made over the last couple of years “continue to move [the business] forward”. French Connection, he says, is “fully on track” to meet its full-year expectations.

Retail like-for-likes in the UK and Europe registered a 1.4% uptick during the six months to July 31 “despite the difficult trading environment” – a big improvement on the 7% decline suffered in the comparable period last year.  

Underlying operating losses narrowed by £200,000 to £5.3m year on year and its licensing income notched up a 3.6% increase to £2.7m – up slightly from £2.6m the previous year, with sales from furniture partner DFS “performing strongly”.

Concerns remain

However, the bigger picture was not bright. Total group revenue was down 12.2% to £51m, partly reflecting the reduction of its store portfolio and problems with wholesale shipments. Retail revenue dropped 12.8% to £23.8m, wholesale revenue fell 1.7% to £27.2m and online sales slipped 9.6%.

GlobalData analyst Pippa Stephens observed that the performance “is doing little to assure prospective buyers of its future potential”.

French Connection’s share price dropped 8% on the day the results were revealed, leaving the business with a market cap of just £33m. That valuation sheds some light on why a sale could be taking so long.

Just five years ago the retailer was generating sales of £190m and was worth almost double what it is today.

Founder Marks, who still has a stake of about 40%, will be determined to realise as much as he can of the value he created over the years, but any likely buyer, such as Ashley, will drive a hard bargain based on the retailer’s more recent travails.

City Index senior market analyst Fiona Cincotta said: “More optimistic investors would have been hoping for news of a takeover bid [this week], given the company has been trying to flush out a deal for almost a year now. They shouldn’t count on one emerging any time soon, especially if the company continues to hand down losses like these.”

Stephens said because French Connection’s product offer “lacks originality and direction”, a “fresh perspective from its design team is crucial to reignite shopper interest”.

With strong competitors in the likes of Reiss, Whistles and lower-priced Zara stealing its target audience with more relevant and fashionable ranges, French Connection has its work cut out whether it remains a listed business or goes private through a sale.

Private ownership would probably be for the best because of French Connection’s illiquid shares, and a market cap too small to be of interest to many institutional investors. 

Therefore shareholders will hope that the latest extension of sale talks finally delivers a deal.