French Connection investor urges retailer to step up turnaround plan

* Run of pretax losses continued in first half

* Shares (Berlin: DI6.BE - news) drop 9.4 percent; down 90 pct from 2004 highs

* Activist investor calls for more store closures (Recasts, adds investor, analyst and COO comment, share price)

By Rahul B

Sept 20 (Reuters) - Activist investor Gatemore Capital Management has urged French Connection (LSE: FCCN.L - news) to speed up its store closure programme after Tuesday's first-half results showed another pretax loss for the British fashion retailer.

French Connection has failed to post annual pretax profit since 2011/12 and its shares have tumbled 90 percent from 2004 highs, prompting it to close stores and hire new management and design teams as it tries to fend off competition from fast-fashion rivals such as ASOS (LSE: ASC.L - news) , Forever 21 and Inditex (Amsterdam: IT6.AS - news) 's Zara.

Yet Gatemore, which holds about an 8 percent stake in French Connection, is unhappy with the pace of change and said that the retailer should reduce its portfolio to 30 stores in the UK and Europe by 2018.

French Connection operates 69 stores across UK and Europe, having closed five of its weaker outlets in the six months to July 31. The UK and Europe region accounted for 74 percent of the company's sales in the year to Jan. 31.

"With (Other OTC: WWTH - news) over four years of consecutive losses, the retailer's turnaround has not gone far enough: the rate of store closures needs to increase and margins need to improve," Gatemore said in a statement on Tuesday.

French Connection declined to comment on Gatemore's statement but said it was holding talks with the shareholder concerned.

The company's current position is a far cry from the heady days of 2004, when its share price stood at more than 500 pence, aided largely by the huge success of its FCUK logo.

Its turnaround efforts helped the retailer to post positive first-half like-for-like sales in the UK and Europe for the first time since July 2014, but losses from wholesale and licensing business continued to drag on profit.

Its pretax loss of 7.9 million pounds ($10.2 million) in the six months to July 31 was unchanged from the same period last year, sending the company's shares down 9.4 percent to close at 39.5 pence.

Broker Numis has a "buy" rating on the stock and said in a client note that French Connection had made progress despite a difficult market for British clothing retailers. It cited improvements across the business, particularly in design.

Gatemore has previously urged French Connection founder Stephen Marks, who owns nearly 41.5 percent of the shares, to give up his dual role as chairman and CEO.

Chief Operating Officer Neil Williams said on Tuesday that the board had openly engaged with Gatemore but is not focusing on splitting the founder's role.

"We are in middle on a turnaround here and we dont want to do anything that potentially disrupts it at this point in time," he said. ($1 = 0.7718 pounds)

(Editing by Mark Potter and David Goodman)