Struggling-yet-iconic fashion retailer French Connection (FCCN) is selling its Toast mail order business to Denmark’s BESTSELLER for a bumper £23.3m, a move that will sharpen its focus on the core brand and facilitate a return to the dividend list.

Conditional upon the nod from shareholders, the deal’s proceeds will top up French Connection’s working capital coffers and (hopefully) support its return to sustainable profitability.

Shares in French Connection skip almost 14% higher to 49p on news it is offloading its 75% stake in Toast, whose 25%-owners Jamie and Jessica Seaton are seeking an exit, to Danish group BESTSELLER, a prominent name on the shareholder register at ASOS (ASC:AIM).

BATTLING ITS WAY BACK?

The disposal will bring in around £13.9m in net cash proceeds to French Connection, whose full year results (13 Mar) revealed improvement across all divisions in the face of some of the most testing UK retail market conditions in living memory.

Battling its way back to profitability - the underlying operating loss narrowed by a better than expected £3.1m to £600,000 in the year ended 31 January - French Connection’s investment focus needs to be on its core brand rather than funding Toast’s growth plans including international expansion.

So long as the sale is approved, French Connection also says it will review its dividend policy with a view to restarting the shareholder reward, shelved in 2012, once the group has been returned to profitability.

MAN WITH A (TURNAROUND) PLAN

Under chairman, CEO and largest shareholder Stephen Marks, French Connection plans to continue shuttering loss-making stores while growing the wholesale and licensing businesses.

Within last month’s annual results statement, French Connection, where Mike Ashley’s Sports Direct International (SPD) also has a major stake, revealed it had ‘received an unsolicited approach about a potential offer for the group’ from an unnamed US third party last year, although ‘this ultimately did not lead to an offer’.

Toast, a womenswear, loungewear and homeware brand whose products are sold in John Lewis, has always been operated separately from the rest of French Connection. As such, Marks believes that ‘separating it from the continuing group should therefore be relatively straightforward.'

Marks comments: 'The price achieved for Toast reflects the strength of the brand and the business we have built behind it. French Connection will use the transaction proceeds to underpin its core business, allowing us to focus on our priority of returning to sustainable profitability and growth.'

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