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Esprit Seeks Licensing Partner for North America

The company, which saw a steep drop in first-half profits, is no longer seeking a sale of its North American assets.

HONG KONG — Esprit Holdings Limited saw its net profit for the last six months of 2011 drop sharply as the company said Thursday that it is seeking a licensing partner for its North American business.
 
Esprit said its net profit for the six months ended Dec. 31 slumped 74 percent to 555 million Hong Kong dollars, or $71.57 million at current exchange rates. Sales for the period declined 5.6 percent to 16.70 billion Hong Kong dollars, or $2.15 billion. (The Hong Kong dollar is pegged to the U.S. dollar.)
 
Notably, the company’s operating margin, at 4.7 percent, far exceeded expectations, putting the company on track to exceed expected full-year operating net margin of 1 or 2 percent. Shares of Esprit rose more 25 percent on the Hong Kong stock exchange on the results. Esprit’s shares declined more than 73 percent last year.
 
After admitting that its brand had “lost its soul,” Esprit unveiled a dramatic restructuring plan last year to improve the “fashionability” of the brand and to focus on Asia and select European markets for future growth. As reported, the plan includes closing down all its stores in North America. On Thursday, the company said it is no longer considering a sale of its North American store network, which it expects to shut down completely by the end of March.
 
“We are no longer doing that because we don’t want to compromise on brand positioning and distribution channels,” chief financial officer Fook Aun Chew, said during a press conference. The company has already begun the wind down of 41 retail stores and 53 outlets.
 
Chief executive officer Ronald van der Vis, who also spoke at the presentation, said the company is having “ongoing discussions” with interested parties for licensing deals, but declined to give further details.
 
“I would rather take more time to find the right partner than have a down and dirty deal,” van der Vis said more than once, stressing that the company is being “very strict on what we allow and don’t allow” in a licensing deal.
 
“We won’t let others run the brand down,” he emphasized.
 
In China, the company has been growing rapidly. The company increased its footprint to 194 cities, up from 185 in June, and intends to accelerate expansion in the second half of the year. Esprit last month hired Holly Li, Adidas’s general manager for north China, as the company’s new chief executive in China. Also as part of its China expansion plans, Esprit established a China design center, hiring Melody Harris-Jensback, formerly of Puma AG, as Esprit’s chief product and design officer. The hiring marks a return for Harris-Jensbach who formerly held senior management positions within Esprit.
 
The company is also testing some redesigned pilot stores in Europe and will be testing out two other designs later this year. The first opened in Cologne, Germany in September and saw a 25 percent increase in foot traffic and visitor numbers as well as improvements in gross profit.
 
Van der Vis also said the company is making changes to the wholesale business and reviewed all European wholesale accounts. The company identified 650 accounts as key partners and is negotiating packages with them regarding refurbishment, expansion support and other issues.
 
“I am very happy with the progress we’ve made so far,” he said regarding the restructuring plan.
 
Esprit also said Thursday that Francesco Trapani, the former chief executive officer of Bulgari and now a member of LVMH Moët Hennessy Louis Vuitton’s management team, has tendered his resignation as an independent, non-executive director of the company due to “other personal commitments.”
 
“Mr. Trapani confirmed that he has no disagreement with the Board of Directors and there are no other matters with respect to his resignation that need to be brought to the attention of the shareholders of [Esprit],” the company said.