HONG KONG – Esprit Holdings Limited said Thursday that its first-half net profit fell about 21 percent on costs related to the company’s shift to a retail-based business model and other expenditures.

 

The company’s board also announced the resignation of Heinz Krogner-Kornalik, the non-executive chairman of the board and non-executive director of the company, effective February 11. Hans-Joachim Korber, a former chief executive at Metro AG, has been elected as his successor in those positions.??Esprit said that Krogner had “no disagreement” with the board and he intends to pursue other personal endeavors.??Esprit said that net profit fell 20.9 percent to 2.14 billion Hong Kong dollars, or $274.86 million, for the six months ending December 31, 2010. Sales for the period fell 4.2 percent to 17.69 billion Hong Kong dollars, or $2.27 billion.

 

At a press conference, executives said that despite losses, they see positive movement in the results. Overall, sales rose 1.6 percent year-on-year in local currency terms. Executives attributed the improvement to strong turnover growth in those same currency terms in the second quarter and consolidation of the turnover from the Group’s China subsidiaries.

 

Last year the Group announced ambitious plans for growth in the Asia Pacific retail market and executives say that those plans are beginning to bear fruit. The region’s share of turnover grew from 12 percent to 17 percent in the first half. China, where Esprit now has more than 1000 points of sale, mostly concessions within department stores, provided 8.5 percent of total retail turnover.

 

The company has begun to consolidate its sourcing, moving from 117 to 11 suppliers for its sweater business, for example, and is now sourcing yarns and fabrics directly at the mills. “Our first savings are in capacity,” said Ronald Van der Vis, group chief executive officer. He pointed out that Esprit has been making efforts to optimize its sourcing, which heretofore has been reliant on suppliers in China. “We’re diversifying to other countries. We’ve tripled the share of Bangladesh already,” he said. The company has also opened a sourcing office in Bangladesh.

 

Offsetting the continued inflation in cotton prices remains a major driver in such sourcing decisions. “If cotton prices go up another 15 percent – and they’re already up 100 percent, then it will be difficult. But we’re working closely with [fewer] suppliers, trying to offset it on both sides,” said Van der Vis.

 

Van der Vis added that wholesalers have responded positively to Esprit’s efforts to unify its brand image around the world. Currently only 5 percent of the product mix overlaps globally. Van der Vis wants to see that number increase to 40 percent. “I’m happy our wholesalers are following the directions. They are buying independently, but they’re following it – its’ good for brand development, good for marketing and it drives sourcing efficiency.”

 

Consumers will begin to see the new, more cohesive product mix at Esprit stores in fall-winter. In the meantime, executives said that they have so far closed 8 of the 33 loss-making shops slated for closure. The other 25 will close as negotiations with landlords are concluded. Van der Vis says stores will also continue to open, particularly in China, where growth above 7 percent is expected.

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