HONG KONG — Esprit Holdings said Friday it swung back into the black for the first six months of its fiscal year as its ongoing restructuring starts to bear fruit, but it remains cautious about the second half.
Net profit for the six months ended Dec. 31 came in at 95 million Hong Kong dollars, or $12.25 million, compared with a loss of 465 million Hong Kong dollars, or $59.95 million, a year earlier.
Sales slid 5.5 percent to 12.81 billion Hong Kong dollars, or $1.65 billion, the company said Friday. They declined 9.3 percent in local currency terms. The Hong Kong dollar is pegged to the US. dollar.
The company posted an operating profit of 254 million Hong Kong dollars, or $45.64 million, compared with a year-earlier loss of 265 million Hong Kong dollars, or $34.17 million.
“These are good numbers for the first half and we feel comfortable with the performance. But it’s important to remember that the financial performance is usually weaker in the second half — because of the seasonality of the business; the operating environment in Europe and Asia continues to be very challenging; and the company is in the middle of a transformation where we are implementing a lot of changes,” chief executive Jose Manuel Martinez Gutierrez said at a press conference.
Part of that transformation is an ongoing downsizing of the company, winding down the parts of the underperforming parts of the business in order to increase profitability.
“The target is to close those stores where there is big loss making and collections with loss making — so we have closed a lot of the sports division and some of the product and we are also closing some of the loss-making stores,” said Gutierrez.
Esprit has already exited the U.S. market and is closing stores in France and elsewhere in Europe.
The company saw its core retail sales in the Asia Pacific region slide 15.4 percent in the half while those in Europe grew 5.2 percent. Esprit has big hopes pinned on turning around its underperforming business in China, one of its key markets along with select European countries.
Esprit has just brought in a new managing director for its China business. Bernard Mah, the former executive chairman of Giordano’s operations in China, started his new role this month. He replaces Holly Li.
Gutierrez said he hopes that Mah’s 17-plus years experience in the China market will help boost Esprit’s less than impressive performance on the mainland. He said the high rents had proved a big challenge in China and expressed a personal view that negative press coverage of the company and its store closures had made some consumers concerned about Esprit’s position on the mainland.
“The combination of bad results, the closing of some bigger stores and the informal conversations I had with some partners, gave me the impression that the market was fearing we might leave,” said Gutierrez, adding that Esprit has 333 retail stores in China.
“There’s no way we can lose the opportunity in China,” he said. Gutierrez, who joined Esprit from Inditex in 2012, said he is happy with the progress the company is making both in terms if financial improvement as well as the company’s transition to a vertical business model. The retailer is working to shorten lead times In May last year he said he hoped to reduce the lead time from nine to three months and this has almost been achieved with three to four month lead times now possible, he explained.
“We are not talking fast fashion — we are just faster to react to demand and more efficient,” said Gutierrez. He said the chain’s customers are after casual and sporty clothes with trends reflected in the colors and fabrics and a good fit rather than trend-driven items.
Esprit said it is standing by the full-year guidance it gave back in September, when it said it was expecting a slight decline in sales and gross operating margin.
“For the financial year FY13/14, the Group expects a further decline in turnover, mainly due to reduced controlled space in both the retail and wholesale channels that will result from store closures and further rationalization of our wholesale customer base,” the company said.