Esprit Posts First Annual Loss Since IPO as Sales Slump

September 10, 2013 Leave a comment

Esprit Posts First Annual Loss Since IPO as Sales Slump

Esprit Holdings Ltd. (330), the apparel seller whose two top executives quit last year, reported its first annual loss since a 1993 listing due to sales declines, store closures and a drop in the value of goodwill. The company swung to a loss of HK$4.39 billion ($566 million) for the year ended June, from a HK$873 million profit a year earlier, according to a Hong Kong stock exchange statement today. That compares with the average estimate for a HK$3.4 billion loss from 14 analysts surveyed by Bloomberg.Esprit, which gets more than 78 percent of its sales from Europe, has seen sales slump in the region on weaker consumer demand. It today forecast “slight” declines in revenue and gross profit margins for the current fiscal year.

“It’s hard for the company to turn around its operations once the brand has lost its appeal,” Francis Lun, Hong-Kong based managing director at Lyncean Securities Ltd.

The clothier has invested in advertising and store upgrades as it faces competition from rivals including Hennes & Mauritz AB (HMB), Fast Retailing Co. and Inditex SA (ITX)’s Zara.

Esprit shares dropped 0.3 percent to HK$12.52 as of 1:03 p.m. in Hong Kong trading. It had advanced as much as 5.6 percent before the earnings announcement. The benchmark Hang Seng Index gained 0.6 percent.

Annual sales fell 14 percent, with Europe dropping 11 percent, the company said today. Results were also hurt partly by a goodwill impairment of about HK$2 billion related to China investments.

Rival Brands

In the short term, the company doesn’t foresee “a visible improvement of the top line,” it said today. The weak macroeconomic environment will remain a pressure and the measures being taken to revive results are still a work-in-progress, it said.

The brand aims to improve its business and distribution by cutting money-losing retail stores, unproductive product lines, unprofitable wholesale business and exiting countries where it’s incurring losses, Chief Executive Officer Jose Manuel Martinez Gutierrez said in May.

Esprit lost two executives in 48 hours in June last year. Former Chairman Hans Joachim Koerber resigned a day after then-Chief Executive Officer Ronald Van der Vis quit. The departures fueled doubt over the company’s ability to see its transformation plan through. Van der Vis was replaced by Martinez, a former Inditex manager.

In February, Esprit posted a first-half loss of HK$465 million.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

Filed under Investing Process, Macro Trends

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