By  on August 26, 2009

HONG KONG — Hong Kong-based Esprit Holdings Ltd. said Wednesday the weaker euro and other macroeconomic factors hurt its full-year profits and sales.

The global retailer and wholesaler of apparel said net profit for the year ended June 30 declined 26.4 percent to 4.75 billion Hong Kong dollars, or $612.75 million at average exchange rates for the period. Sales slid 7.4 percent to 34.49 billion Hong Kong dollars, or $4.45 billion

“The second half of the financial year became more challenging as we saw rising unemployment rates, continued restrictive lending to consumers and the outbreak of swine flu, which all contributed to dampen consumer confidence further,” the company said.

Operating profit fell 25.8 percent to 5.73 billion Hong Kong dollars, or $739.2 million. Net profit margin fell to 13.8 percent from 17.3 percent a year earlier.

“This year, the robustness of our company was put to the ultimate stress test,” said Esprit’s chairman and group chief executive Heinz Krogner. “On many fronts, I am proud to see that the evidence of the resilience of our business model is abundant. Nevertheless, I see difficult times as a wake-up call and I have taken this opportunity to strengthen and consolidate the operating platform, all in preparation for future growth as the global economy recovers. I am convinced that Esprit will emerge as a bigger and stronger company.”

The wholesale business bore the brunt of the global recession with turnover slipping 14.5 percent to 17.9 billion Hong Kong dollars, or $2.3 billion, as the group struggled with order cancellations. “There has been a shift in the European wholesale market. Many of our customers have closed their doors whilst department stores have shrunk the size of their business or gone bankrupt,” said Krogner. “Despite our efforts to focus on partnership stores in the wholesale market, we could not offset the losses quickly enough.”

The group hopes the development of its partnership franchise concept (stores the retailer runs, but does not own) will lift its wholesale business. Up to 130 to 140 franchise store openings have already been planned, with Krogner noting that up to 50 percent of distribution will follow this new format in the future.

Retail revenues advanced 1.8 percent to 16.35 billion Hong Kong dollars, or $2.1 billion, as the group grew retail and franchise store selling space by 15 percent, and posted a 3.5 percent retail comparable-store sales growth. The retail business now contributes over 47 percent of group turnover.

“We plan to reengineer our retail practice by sharpening our offering and making greater distinctions between our women’s casual, women’s collection and EDC line so as to give customers greater variation. We are also rolling out two brand new store concepts, to be first launched in Hong Kong and Europe, before being exported to the rest of the world,” Krogner explained.

The company plans to open 60 to 80 stores in fiscal 2009-2010, focusing on core profitable markets like France as well as promising countries like the U.K., Canada and Australia, where the group is close to breaking even.

“We have decided not to take any risks in new markets we don’t know. These markets take time and the current environment is too difficult to go where we don’t know,” said Krogner. “We don’t want to take any additional risks.”

Though the ceo does not expect to see any dramatic positive change for the remainder of the calendar year, he is optimistic the company’s strategies will position the group well for economic recovery.

Separately, in an anticipated management reshuffle, group executive director Ronald Van der Vis will assume the role of group ceo on Nov. 1. Krogner will remain chairman.

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