By  on September 26, 2012

HONG KONG — Esprit Holdings Limited reported higher profitsfor its most recent fiscal year, but saw shares drop by as much as 8.8percent Wednesday after it missed analysts’ forecasts.

Espritsaid net profit for the 12 months ended June 30 grew more than 11 timesto 873 million Hong Kong dollars, or $111.8 million, from theyear-earlier figure of 79 million Hong Kong dollars, or $10.1 million.Though higher, the net profit fell short of consensus analysts’ opinionforecast of 995.8 million Hong Kong dollars, or $128.4 million, to 1.01billion Hong Kong dollars, or $130.4 million.

Esprit said thecost of divesting its North American operations were less thanpreviously forecast and the company was able to book a write-back of 696million Hong Kong dollars, or $89.7 million, on a provision made forstore closures. Meanwhile, marketing expenses rose to 1.57 billion HongKong dollars, or $206 million, from 984 million Hong Kong dollars, or$126 million, in the previous fiscal year.

Operating profit alsoimproved significantly, jumping 69.2 percent to 1.17 billion Hong Kongdollars, or $149.77 million, while sales for the period declined 10.7percent to 30.17 billion Hong Kong dollars, or $3.86 billion. The HongKong dollar is pegged to the U.S. dollar.

The shares closed onthe Hong Kong Stock Exchange at 12.34 Hong Kong dollars, or $1.58, down6.9 percent.

Esprit chairman Raymond Or voiced a cautious outlookfor the future.

“The operating environment is likely to remainchallenging in the new financial year with the unresolved European debtcrisis and the slowdown in China’s economic growth,” he said. “We willexert vigorous efforts to ensure that the initiatives will produceresults at an even faster pace and create an inspiring shoppingexperience for our customers.”

Speaking at his last Esprit pressconference, outgoing chief executive Ronald Van der Vis went overdetails of the company’s progress on the transformation plan.

Espritmade “tangible progress” in the first year of the transformation planand the company is “laying a strong foundation for future growth,” hesaid.

Under Van der Vis, the company unveiled an ambitious planlast year to improve the “fashionability” of its brand, which it hasacknowledged has lost its appeal with shoppers. The company has exitedthe North American market and is focusing on Asian and select Europeancountries for future growth.

Van der Vis said Wednesday thatsales generated by a London-based new trends division have been betterthan expected, with sell-through more than double that of othercollections. Given the warm reception, the company is planning to rollout the collection to Asia and expand to a men’s trends collection.Esprit is also talking to wholesalers. Van der Vis wouldn’t divulge themargins on the trends collection, saying only that the emphasis is onexceeding customers’ expectations and on providing good value.

Thecompany has also opened a Hong Kong-based design hub to create designsfor mainland China. China now makes up 8.6 percent of total grouprevenue, up from 7.9 percent in 2011, and the company intends to expandits presence in China from 191 cities to 400 by 2014/2015 and increasepoints of sale from 1,013 to 1,900.

Esprit also said it hassuccessfully centralized its buying functions, putting it on track toachieve annual savings of 1 billion Hong Kong dollars, or $128.9million, by 2014/2015. As part of this centralizing, Esprit has reducedthe number of suppliers by 21 percent, the number of factories it workswith by 29 percent and also successfully reduced its rejection rate byhalf. The company is expanding its sourcing footprint to new marketssuch as China, Bangladesh, Indonesia and India while reducing its shareof sourcing agents by 28 percent

New chief executive officer JoseManuel Martinez Gutiérrez was present at the press conference and made afew introductory remarks. Gutiérrez, a veteran of Inditex, has been onthe job only 10 days, so he kept his remarks short. He said he “fullyagrees with the fundamentals of the transformation plan” but couldn’tyet give specifics on what changes may be made in the future.

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