Hong Kong-listed fashion retailer Esprit Holdings warned Monday it expects a “substantial” loss for the year ended June affected by poor performance in China and an unusually warm winter in Europe.
The profit warning, issued after the stock market closed, said the retailer is preparing for a goodwill impairment associated with its China business of between 2.5 billion Hong Kong dollars and 2.76 billion Hong Kong dollars, or $322.5 million to $355.1 million as it closes unprofitable stores and clears inventory from its wholesale partners.
Esprit’s China turnover declined 28.3 percent in local currency terms for the financial year 2013-14 and 21.6 percent for the first half of this year. Market conditions in Europe, where the company derives close to 80 percent of its business, were tough too with a remarkably mild winter forcing the retailer to discount heavily.
The company had a net cash position of 5.23 billion Hong Kong dollars, or $674.7 million and carried zero debt, the statement said.
Shares of the firm edged down 0.29 percent on Monday to close at 6.99 Hong Kong dollars, or 90 cents. Esprit’s stock price has fallen 46 percent from its peak on September 4.
In February, the group launched its first collection produced under a new verticalized business model. “We are encouraged by the initial positive response to our new collections,” Esprit chief executive officer Jose Manuel Martínez Gutiérrez said.
“We believe the company is taking the right steps, but it is very difficult to gain customers back and turn around the brand after years of heavy discounting and store closures,” a May 4 note from CLSA analysts Aaron Fischer and Mariana Kou said.
“Earnings are likely to be depressed as the company invests in marketing to drive sales amid a very challenging apparel market in Europe,” the report said.