Esprit Swings to H1 Loss

The company warned that its ongoing restructuring efforts will take time to produce financial results.

HONG KONG — Esprit Holdings Limited swung to net and operating losses for the six months ended Dec. 31 as it warned that its ongoing restructuring efforts will take time to produce financial results.


The company said Wednesday that it posted a first-half net loss of 465 million Hong Kong dollars, or 59.9 million at current exchange rates. That compares with a year earlier profit of 555 million Hong Kong dollars, or $71.4 million. (The Hong Kong dollar is pegged to the U.S. dollar.)


Esprit also lost money on an operating level, posting a loss of 265 million Hong Kong dollars, or $34.1 million. That compares with a year earlier operating profit of 787 million Hong Kong dollars, or $101.44 million.

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Sales for the period declined 18.8 percent to 13.55 billion Hong Kong dollars, or $1.74 billion.


“The combination of our internal efforts together with a very challenging market environment, drove us into a much worse than expected sales,” Jose Manuel Martinez Gutierrez, Esprit’s new chief executive officer, said during the earnings presentation.


The company said the Eurozone crisis dampened consumer sentiment in Europe, hurting its business. Europe accounts for about 80 percent of the company’s sales.


Martinez, who joined Esprit from Inditex in September after former chief executive Ronald Van Der Vis quit, characterized the outlook for the company in the second half of the year as “challenging” and said the company is being “conservative and prudent” given tough market conditions.


The executive noted that Esprit now has less sales square footage than a year ago and foot traffic has been declining in the market in general. That said, he also noted some positive signs such as slower declines in comparable sales performance.


Given the tough macro environment, Martinez said the company would be aggressively reducing costs. He said that the company remains focused on the transformation plan but it is also working on stabilizing the top line, normalizing inventory levels and reducing operational expenses in the short term. Martinez also said the company would be more selective concerning investments.


As part of its transformation plan, Esprit has pulled out of the North American market, invested in advertising and streamlined its supply chain to reduce the number of sourcing agents. The company has also been refurbishing select stores. Redesigned stores have been rolling out across Europe but Martinez said continued rollouts would depend on the company’s bottom line and how well the stores are received.


“If I am optimistic, I would say that we could have the majority of stores, especially top selling stores, [would be refurbished] in the next two years. But it’s going to be a learning process. It would be dangerous to commit to rolling out quickly. We will be increasing the number of stores under the new concept, and if we keep on seeing positive performance, then we will accelerate. If we see that it is not sustainable, then we will rethink the rollout plan,” he explained.


The company has also been working to up the fashionability of its clothing and to improve the quality and value of its clothing. Martinez said the company’s price points would stay in the same range. He also noted that collections by newly formed divisions, denim and trends, are coming out in the spring.


Esprit said the transformation plan remains a “work in progress” and it will take time to see benefits in terms of its operating results.


“We are still convinced this is the right direction for us to go,” Martinez said.