Esprit appears to have finally turned a corner.
The Hong Kong-based clothing retailer, which has been restructuring its business and attempting to upgrade its image, said Tuesday it posted a full-year net profit of 21 million Hong Kong dollars, or $2.71 million, compared to a year earlier loss of 3.7 billion Hong Kong dollars, or $467.82 million.
Sales for the 12 months ended June 30 slid 8.4 percent to 17.79 billion Hong Kong dollars, or $2.29 billion. (The Hong Kong dollar is pegged to the U.S. dollar.)
“It was a positive year for Esprit on most fronts,” said Jose Manuel Martinez, Esprit’s chief executive officer and a former executive at Inditex, is spearheading Esprit’s turnaround. He joined the company in 2012. “In terms of strategy, it was a year of good progress. We saw positive results from our vertical model. Introduced two years ago, this was the first year to see results”
Esprit said its online and physical stores performed strongly and it benefitted from cost-cutting and a positive tax balance. It also obtained an exceptional gain from the sale of office space in Hong Kong but exceptional expenses related to restructuring the business offset that benefit. Esprit is closing underperforming stores to focus on strategically located units and e-commerce. It is also shifting its business model to rely more heavily on its own network of retail stores rather wholesalers.
“We are starting to see benefits, improved sales performance in retail and online. This has helped us to start recovering our bottom line,” Martinez said. “The last pending element of our vertical model is the introduction of stock management optimization. This will save us money from a logistic point of view, instead of operating through six logistics centers in Europe we will have our own centre. Construction is underway and expected to be completed next year.”
Esprit said its operating losses for the year narrowed to 596 million Hong Kong dollars, or $76.81 million, from 3.68 billion Hong Kong dollars, or $474.63 million.
Thomas Tang, Esprit’s chief financial officer, said market conditions have been tough for a company that is turning around its business.
“We have been impacted by external factors – the financial markets, market volatility, the slowdown of the Chinese economy. And we are seeing great challenges – a reduction of traffic, less people traveling, less people are spending money.”