HONG KONG — Esprit Holdings Limited saw full-year net profits slump as its wholesale business continued to suffer.
This story first appeared in the September 3, 2010 issue of WWD. Subscribe Today.
The company said Thursday that net profit attributable to shareholders fell 10.9 percent to 4.23 billion Hong Kong dollars, or $543.4 million, for the fiscal year ended June 30. Esprit said a combination of store closure costs, increased expenses and a higher tax rate bit into its numbers. Revenue declined 2.2 percent to 33.73 billion Hong Kong dollars, or $4.34 billion, while operating profit fell 33.9 percent to 3.79 billion Hong Kong dollars, or $486.9 million.
At a press conference here, executives outlined an aggressive plan to grow the business in China through retail and franchise opportunities. They also revealed that they are exploring the possibility of launching a lower-price China-specific clothing line to better penetrate third- to fifth-tier cities and capture market share. Esprit would join the ranks of both Levi’s and Hermès, which also are rolling out brands for the China market.
Esprit, which is heavily dependent on the German market, aims to double sales in China over the next five years from the 793 million Hong Kong dollars, or $102 million, it did this year. In February, the company bought back 51 percent of its operations in China.
“If you look at lower-tier cities such as Chongqing, which has a population of 28.39 million and only 10 Esprit points of sale and compare it to Shanghai, with a population of 18.88 million and 115 points of sale, it is obvious there is a vast potential to be untapped,” said group chief financial officer Fook Aun Chew.
Esprit also is planning to launch an e-shop similar to the European and North American business model for the Chinese market, scheduled to make its debut in the second half of its fiscal year ending in 2012.
Beyond these moves, the company is evaluating its presence elsewhere in the world. It revealed plans to shutter 33 unprofitable stores worldwide and pull out of Portugal and Norway completely. Timing of the store closures will be dependent on negotiations with landlords.
The company also will begin to roll out stand-alone bodywear stores, which it has been testing over the last year, across Germany and Belgium, with potential for further expansion already identified.
Esprit has spotted opportunities in the shoes, accessories and denim markets and hopes to push sales of handbags and shoes through visual merchandising techniques as well as rework its jeans offerings. Global chief executive officer Ronald Van der Vis said the company wants to boost denim’s contribution to Esprit sales from the current level of 8 or 9 percent to 15 percent.
For the fiscal year, which has just begun, Esprit’s capital expenditures will total 2.2 billion Hong Kong dollars, or $283 million.
The largest Esprit store to date will open in Frankfurt on Sept. 15.