WWD.com/business-news/financial/esprit-talks-transformation-6924131/
government-trade
government-trade

Esprit Talks ‘Transformation’

Chief executive Jose Manuel Martinez Gutierrez said he estimates it will take another 18 months to implement most of the changes in the transformation plan.

HONG KONG — Esprit Holdings Limited, which warned Tuesday of a “substantial loss” in the second half of the year, said Wednesday that the company’s transformation plan is taking longer than originally anticipated.

Speaking to reporters at Esprit’s Hong Kong headquarters, chief executive Jose Manuel Martinez Gutierrez said he estimates it will take another 18 months to implement most of the changes in the transformation plan.

“There’s no quick fix,” he said. Improvements are happening but changes are progressive and “take quite some time.”

Gutierrez, who took over the role of chief executive from Ronald van der Vis in September 2012, said he likes and supports the transformation plan that was first introduced in September 2011 but see changes in the timing.

“We haven’t yet implemented all the steps,” he said.

Besides improving the products, Esprit must also work on structural changes — specifically on shortening the product lead time from an average of 6 to 9 months down to 2 to 3 months, he explained.

“We have the right product but it’s too late,” Gutierrez said. At least one department, the trends department, already has a short lead time of  two to three months but lead time is too long in other departments.

Gutierrez, who worked at Inditex for nine years before joining Esprit, appears to be taking a page from Zara’s playbook. Gutierrez is credited with overhauling and improving the Spanish company’s supply chain management.

Gutierrez said while he estimates the bulk of Esprit’s transformation plan will be complete in about 18 months, he is hopeful the company’s financial performance will improve sooner. There has already work done on reducing costs, he said, and revenue growth should follow soon.

In addition to improving the product and product lead time, Esprit needs to work on wooing back customers, the chief executive said.

Esprit, which posted a loss of 465 million Hong Kong dollars, or $59.9 million, for the six month period ending Dec. 31, warned Tuesday that the company would sustain substantial losses in the second half of the yearbecause of impairment of goodwill arising from the company’s acquisition of the remaining interests of associated companies in China. Esprit also warned that there would be provisions and impairments related to closure of loss-making stores, as well as additional provision for inventory.

Shares of the company dropped as much a 7 percent on Wednesday after the profit warning. Shares of the company have declined more than 20 percent over the past year. The company has struggled against rivals such as H&M and Uniqlo and admitted to having “lost its soul” over the years.