UPDATE 1-French Connection expects big loss as discount delay backfires

Wed Jan 16, 2013 5:06am EST

* Sees FY pretax loss 7.5 mln-8 mln stg vs estimates 5.47 mln stg

* UK, Europe like-for-like sales fall 2.9 pct in 24 weeks to Jan 12

* Shares drop as much as 17 percent (Adds analysts comments, details; updates share movement)

By Karen Rebelo

Jan 16 (Reuters) - Fashion retailer French Connection Group Plc warned of a larger-than-expected loss as Christmas sales were hurt by lower demand and a decision to delay discounting.

Shares in the British retailer, famous for its FCUK brand of clothes and accessories, fell 17 percent to 24.48 pence on Wednesday morning on the London Stock Exchange.

"It now looks likely that it will be at least two years before results break even," Seymour Pierce analyst Kate Calvert said in a research note.

"There must now be question marks over the company's strategy, which was unveiled in September," Calvert added.

French Connection said it expected an adjusted pretax loss of 7.5 million to 8 million pounds (about $13 million) for the year ending Jan. 31, much larger than the 5.47 million pounds analysts were expecting, according to Thomson Reuters I/B/E/S.

French Connection, whose brand value is waning, is also battling aggressive discounting from online retailers in the United Kingdom and had previously forecast a loss for the year.

It reported a pretax profit of 5 million pounds last year.

French Connection chalked out a strategy in September to boost sales that included selling loss-making stores, efforts to protect margins and improve its product offering.

The company said sales in its retail business in the UK and Europe softened in the run-up to Christmas. Like-for-like sales in this business fell about 2.9 percent in the 24 weeks to Jan. 12. Retail business from the UK and Europe comprises roughly half of the company's total revenue.

The retailer said it delayed discounting during the Christmas period by a week in an attempt to build brand equity. A fall of 1.9 percent in like-for-like sales was directly as a result of the delay in discounting, the company said.

While the delay hurt sales it did help margins in the fourth quarter, Numis Securities analyst Andrew Wade said.

The company carried out a similar delay in discounting in North America, where trading was disrupted due to Superstorm Sandy that hit the U.S. Northeast.

French Connection's shares were down 11 percent at 26.81 pence at 0948 GMT. The company's stock has fallen 25 percent in the past year.

The company will report full-year results on March 13. ($1 = 0.6215 British pounds) (Editing by Maju Samuel)

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