FCUK: How a brilliant marketing slogan became one big liability

Stephen Marks, the chairman, lapped up the critical acclaim for its once-edgy "FCUK" ad campaign, while the group's soaring profits helped his personal fortune match the Queen's.

But in the past 12 months the company founded by Mr Marks in 1969 has unravelled at the seams. Sales have slumped as shoppers shunned slogans branded "tacky" by one of the group's wholesale customers.

Yesterday FCUK (the company uses its initials as its internal nickname), which has issued two profits warnings in the past year, held out little hope that its fortunes were on the mend, reporting further falls in sales and a 70 per cent slide in interim profits.

Most alarmingly, the company said its wholesale customers - its main source of profits - had ordered 15 per cent less winter 2005 and spring 2006 stock than at this time last year. It admitted full-year pre-tax profits would be towards the bottom of the £20m to £25m range it gave with its July profits warning. Analysts slashed their numbers again, with some predicting profits for the year to January 2006 would be as low as £17m. And this for a company that made nearly £40m just two years ago.

The demise of French Connection has caught the City's imagination like no other because Mr Marks managed to offload £36.5m worth of his stock close to the peak of the company's valuation last summer - just before sales started to dive. The timing, he said, was nothing but an unfortunate coincidence: he needed the cash to fund his divorce, one of the costliest in the UK. For the first time since he started the company, he no longer has a controlling stake.

Retail experts pin the blame for French Connection's fall from grace firmly on its stubborn refusal to ditch the "FCUK" moniker, which in its time has urged wearers to "FCUK for England", "FCUK like a bunny", or simply, "FCUK forever". The slogan, critics argued, dragged a once premium brand into the gutter. Meanwhile, fashion upstarts, from Tesco's Florence and Fred label to Inditex's Zara, have moved in and lured customers away from its shops.

Although Mr Marks has fought tooth-and-nail to defend the moniker in the past, yesterday he said the group had toned down its use of its infamous logo. "Fashion has changed and we've moved on," he said. Indeed, it proved hard to unearth a single garment brandishing the slogan during a trip to its Canary Wharf outlet. A solitary brown T-shirt was left to say "Sweet FCUK" quietly in swirly, Woodstock-esque writing.

After a grim summer - the group had to extend its sale by an extra three weeks to shift unsold stock - which saw underlying sales in its UK retail business dive 9 per cent, Mr Marks admitted the group had "missed opportunities". Namely it was "overcautious" on key fashions such as embroidered skirts, so when they sold out, it was left peddling its usual basics. Pre-tax profits collapsed, falling almost 70 per cent to £5m compared with the previous year, largely because revenues from its money-spinning UK/European wholesaling arm fell by one-quarter to £39.5m.

The experience has concentrated Mr Marks' mind; after all he has been here before. In 1991, seven years after floating the company, Mr Marks handed the reins to a chief executive who made a disastrous foray into sportswear. The fall in the company's valuation left him renegotiating his bank loans. He has held the combined role of chairman and chief executive ever since.

The result is that this season's ranges, which have barely been in the shops one week, are once again hitting the fashion notes they missed last year. Vanessa Gillingham, the fashion director at Glamour magazine, said: "Their new collection is great. Much more trend-led with a greater focus on individual items, such as a fantastic, grey knitted sweater dress." Lorna Hill, the features editor at Drapers Record, said: "The general feeling is the product has really improved. They have moved away from their FCUK-branded obsession."

Mr Marks said the early response has been strong. "Cut-off trousers in denim and tweed, shruggy-type cardigans and glittery sweaters are all selling very well." His personal barometer, his 30-year-old daughter, Candice, is pointing to fair, he adds. He denied he was being over-optimistic, insisting: "You have to look at our record over 12 years not over two minutes. There are certain areas of business that have surprised us. They've surprised the whole high street."

Someone in the City certainly liked what he saw. Despite the abysmal numbers, shares in the group surged 40.25p to 285.25p as 15.5 million shares - about 15 per cent of its stock - changed hands. Speculation centred on Brandes, the US value investor that spent the summer building a 4 per cent stake, although Baugur, the Icelandic investment group, also owns about 3 per cent. And the speculation occurred despite universal downgrades, several "sell" recommendations, and Mr Marks' reassertion that: "I'm not going to sell the company."

Analysts remain worried that the fall in wholesale orders augurs badly for the group's recovery chances. "People are backing off French Connection because there are other brands out there they can put in that will do better," Matthew McEachran, at Investec Securities, said. The company's retail estate makes a loss, so it relies on wholesale orders for its profits.

Ms Gillingham adds that the other problem is French Connection's clothing remains overpriced against its peers."If you're buying a trend that will last four months you don't want to pay that extra £20," she said.

The group owns three other brands, Nicole Farhi, Toast and Great Plains, French Connection outlets in the US and licenses its brand to sunglasses, fragrances and body lotions. But unless it can rescue its core brand, Mr Marks' fortune - and his reputation - will continue to diminish.