Embattled retailer Esprit Holdings may be facing a probe by Hong Kong’s financial reporting watchdog.
Esprit’s share price fell 6.16 percent to 7.7 Hong Kong dollars, or $0.99, on Monday following a report by local shareholder activist David Webb that the Financial Reporting Council (FRC) may be investigating the company.
The FRC is an independent body tasked with probing auditing and financial reporting irregularities at listed companies. It can refer cases to regulators or the stock exchange for follow-up action. The FRC did not respond to requests for comment.
Esprit said it is aware of Webb’s article. “Esprit has not been notified by or received any communication from the Financial Reporting Council as of today,’’ the company said.
On May 18th, the company issued a profit warning for the financial year ended June 30, saying it estimates goodwill associated with the China business to be impaired by up to 2.7 billion Hong Kong dollars, or $348.36 million. It will also make a provision of up to 300 million Hong Kong dollars, or $38.71 million, for store closures and onerous leases.
The company launched a “transformation plan” in 2011 after reporting a 98 percent slump in profit, saying the brand had “lost its soul.”
Under the helm of chief executive officer Jose Manuel Martínez Gutiérrez it has sought to take on rivals Zara and Hennes & Mauritz in a restructuring described by DBS Vickers Securities analyst Alice Hui as a “long event.”
“It’s hard to see when you are going to see an impact from the transformation…it’s hard to gauge. Instead of focusing on the numbers, investors’ focus will probably be on some of the operational parameters,” she said.
The company announces its annual results in Hong Kong on Wednesday.
Webb, also a former independent non-executive director of the Hong Kong Stock Exchange, said the current chairman who heads up the FRC, a former Esprit executive, has been temporarily replaced because of his disclosure of interests.
Webb dubbed this “a highly unusual step” that would only happen if the FRC chairman, John Poon Cho-ming, had a conflict of interest due to an investigation by the FRC. Poon resigned from Esprit as deputy chairman and CFO in July 2008 having joined the company in 1999 as executive director and CFO. It is the only listed company he has been associated with since 1990.