HONG KONG — Esprit posted a loss for the first six months of the year as it spent more on marking and branding efforts and saw lower sales on a weak euro to Hong Kong dollar exchange rate.
Jose Manuel Martinez, Esprit’s chief executive officer, said the company is making good progress on its extensive turnaround strategy but is still in a transition mode. The former Inditex executive declined to give financial targets for the full-year and said business conditions in both Europe and Asia remain challenging.
“Overall I would say the world is going through a tough phase,” he said.
Esprit, which is undergoing a major revamp of both its image and business model, posted a net loss of 238 million Hong Kong dollars, or $30.63 million, for the six months ended Dec. 31 compared to a year earlier profit of 47 million Hong Kong dollars, or $6.05 million.
Sales dipped 0.4 percent to 9.32 billion Hong Kong dollars, or $1.2 billion, in local currency terms. In Hong Kong dollars, they declined 13.1 percent. Executives lamented the depreciation of the euro against the Hong Kong dollar and a challenging retail climate in Europe, where Esprit does more than 84 percent of its business.
“What we see is a very tough environment for apparel,” Martinez said of business in Europe.
But Martinez went on to state that Esprit is outperforming the market as it transitions into a vertically integrated model with a leaner, faster supply chain and a smaller, more efficient retail network. Esprit executives said the company’s nearly flat sales performance (in local currency terms) comes against a reduction of 8 percent of its sales floor space. Esprit is in the process of closing many of its own retail stores and wholesale accounts.
For the six-month period, Esprit posted a loss before interest and taxes of 247 million Hong Kong dollars, or $317.83 million, compared to a profit a year earlier of 37 million euros, or $4.76 million.
Martinez also said the company hopes to make a return to the U.S. market at some point in the future if it finds the right partner. But he declined to give a time frame for how soon that could happen. Similarly the company is eyeing opportunities in other Asian markets such as South Korea, Japan, India and Indonesia, he added.
“We believe in partnerships,” he said. “They have worked very well for us in other countries.”
Esprit is a brand of American origins with a large presence in Europe. But despite the fact the company is based in Hong Kong and listed here, Asia only accounts for 15.3 percent of the company’s sales.
The retailer is shifting its business model to rely more heavily on its own network of retail stores rather wholesalers. Retail accounted for 67.2 percent of Esprit’s first-half sales compared to wholesale, which generated 32 percent.
Esprit’s wholesale business continues to struggle as traditional retailers like department stores face their own financial issues and declining traffic patterns, Martinez said. But the company’s own retail channel saw first-half sales grow 6 percent in local currency terms as the square meters of its selling space declined 4.9 percent. Germany and the rest of Europe accounted for the swiftest growth, those regions grew at 7.7 percent and 9.4 percent respectively. Sales in Asia advanced 5.1 percent.
Martinez said Esprit is still examining the reasons behind the slower sales growth in Asia but he noted the overall retail market has been under pressure since the summer of last year with less tourism and foot traffic in stores.
The executive also said Esprit needs to revisit its 296-unit retail network in China. He said that “maybe more than half” of the stores need to be relocated to better locations and shopping centers. He also said Esprit’s e-commerce sales in China are going well but he declined to give figures.