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Esprit Profits Fall in First Half

A double-digit increase in retail sales couldn't save Esprit Holdings Ltd. from a decline in first-half profits.

A double-digit increase in retail sales, highlighted by dramatic growth in China, Russia and the Middle East, couldn’t save Esprit Holdings Ltd. from a decline in first-half profits.

The Hong Kong-based global retailer and wholesaler of apparel reported that during the six months ended Dec. 31, net income fell 13.4 percent to 2.85 billion Hong Kong dollars, or $366.9 million, from 3.29 billion Hong Kong dollars, or $422.7 million, a year ago. Earnings translated into 2.29 Hong Kong dollars, or 29 cents, a diluted share versus 2.64 Hong Kong dollars, or 34 cents.

Dollar figures have been converted at average exchange rates for the respective periods.

Overall, revenues advanced 2.9 percent to 19.06 billion Hong Kong dollars, or $2.45 billion, from 18.53 billion Hong Kong dollars, or $2.38 billion. While wholesale turnover declined 2.9 percent, to 10.15 billion Hong Kong dollars, or $1.31 billion, retail revenues surged 10.3 percent to 8.79 billion Hong Kong dollars, or $1.13 billion. Gross margin declined slightly, to 53.2 percent of sales from 53.5 percent a year ago.

Although gross profit increased, operating profit declined 15.1 percent because of increases in staff, occupancy and other costs, as well as depreciation.

“We are particularly encouraged by the 6.3 percent retail comparable-store sales growth, and the encouraging growth achieved in high-potential markets, such as China, Middle East and Russia, which recorded turnover growth rates of 34.5 percent, 33.4 percent and 32.6 percent, respectively,” said Thomas Grote, president of the Esprit brand.

The company sounded a cautionary note, although it focused on wholesale business. Wholesale orders for the first five months of 2009 have declined at a single-digit rate from a year ago, but “the actual wholesale turnover growth realized may deteriorate further if market conditions worsen,” Esprit said.

Heinz Krogner, chairman and group chief executive officer, said, “The impact of the financial turmoil in 2008 reached far and wide globally into each and every economy and industry. While we brace ourselves against stronger-than-ever headwind, we believe this storm, together with its rippling effects, will eventually subside.”

By region, revenues in Germany fell 1 percent to 8.58 billion Hong Kong dollars, or $1.1 billion; while the rest of Europe was up 4.5 percent to 7.65 billion Hong Kong dollars, or $984.2 million. Asia-Pacific grew fastest, with sales rising 13.6 percent to 2.33 billion Hong Kong dollars, or $300 million, while revenues for North America and other parts of the world registered a 3.3 percent increase to 495 million Hong Kong dollars, or $63.7 million.

During the half, Esprit opened a net total of 77 stores, for a total of 774 units, and added 560 points of sale in its wholesale business, to reach 15,150. In the second half of its fiscal year, Esprit expects to spend about 600 million Hong Kong dollars, or $77.2 million, to add more than 25 stores to its retail portfolio. In addition, the firm hopes to add 500 points of sale to its wholesale operations.