Esprit dives as worries increase over euro bonds
Shares of Esprit Holdings, the casual-wear retailer, have plunged 18.8 per cent this month as fears over the euro bond crisis mounted and the depreciation of the euro hurt revenue.
The European economy represents about 85 per cent of Esprit's total sales, and the euro, which benefited Esprit when it was appreciating, is now putting a dent into the firm's sales figures. The depreciation of the currency affects the company's euro-denominated revenue when it is converted into the firm's reporting currency, the Hong Kong dollar.
Esprit said it could switch its sourcing to the euro zone to offset the impact of the depreciation. But that would not happen until the second quarter of next year, a Bank of America Merrill Lynch report said yesterday.
The company normally places orders four to six months in advance and the sourcing for autumn and winter apparel is already completed.
The euro, introduced in January 2002, plunged to a four-year low against the US dollar this week. It has also depreciated 15 per cent against the Hong Kong dollar this year.
Esprit does not hedge for currency risk, according to a Citigroup report.
In addition to the euro depreciation, Esprit's same-store sales posted a worse-than-expected downturn. Same-store sales were down 3.5 per cent year on year in the three months to March, compared with a 0.4 per cent gain in the previous quarter.
Management said it saw no significant improvement in same-store sales figures in April as retail traffic was still down 10 per cent year on year, the Merrill Lynch report said. The severe bad weather in Europe last month may hinder the traffic. Wholesale replenishment orders were minimal as distributors continued to place orders conservatively to avoid inventory risk, the report said.
Management expects wholesale revenues to decline by close to the mid-teens for the full year.
Esprit is trying to mitigate the impact by increasing the percentage of sourcing from lower-cost countries, such as India and the mainland, or at least from coastal to inland China.
The retailer also is trying to get bargain prices by bulk-sourcing through consolidating its T-shirt suppliers to about 20 from more than 120.
The double-digit cost savings by reducing the number of suppliers will be reinvested in the brand or stores to ultimately help drive stronger sales.
Shares in Esprit dropped as much as 7 per cent yesterday to a one-year low before closing at HK$44.55, down 1.2 per cent. The stock has declined 18.8 per cent this month, while the Hang Seng Index retracted 4.7 per cent.
Esprit's former chairman Michael Ying Lee-yuen disposed of 22.8 million shares, or a 1.79 per cent stake, at HK$54.25 each on March 11, according to a sales document.
Major market
The European economy represents about 85 per cent of Esprit's total sales
Shares in Esprit Holdings this month have plunged by around: 19%
