Esprit shares on rollercoaster

PUBLISHED : Saturday, 25 February, 2012, 12:00am
UPDATED : Saturday, 25 February, 2012, 12:00am
 

Esprit shares have swung wildly in the past two days as a spate of new ratings and research reports left the market at a loss as to the prospects of the beleaguered fashion company.

It suffered the biggest intraday drop since mid-December in the morning session, falling 6.3 per cent to HK$16.55, before regaining its Thursday close of HK$17.78. On Thursday, the stock jumped 25 per cent, its biggest advance in 14 years, after first-half profit exceeded market expectations even as it dropped 74 per cent to HK$555 million.

Analysts disagree about the company's future. One of the biggest clothing retailers in the region, its share price plummeted 73 per cent last year because of its heavy exposure to the troubled euro zone markets and slack sales in North America. In September, it hit a low of HK$7.55.

Citigroup yesterday downgraded Esprit from 'neutral' to 'sell', with a new target price of HK$14.30. Macquarie Securities, on the other hand, said it expected the stock to outperform and raised its target price 71 per cent to HK$24, contributing to the market's confusion.

'While its transformation looks to be on track and there are encouraging signs of new products and store concepts, Esprit still faces significant challenges aside from the macro conditions in Europe,' said Eddie Lau, retail analyst at Citigroup.

This echoed the view of a Barclays Capital research note on Thursday that said it continued to underweight the stock as the turnabout of the wholesale business in China would take time and that Esprit's profit margin would probably be squeezed in the second half.

According to Macquarie Securities analyst Gary Pinge, the better-than-expected first-half results showed the brand was not 'broken' but in need of investment. He noted the group's retail sales decline had slowed, a sign the efforts to restructure the business were paying off.

In Europe, Esprit's main market, same-store sales growth fell 0.8 per cent between October and December, from a 9.6 per cent decline in the previous quarter.

In another research note yesterday, Goldman Sachs said it had delayed the review of its rating, target price and estimates of Esprit until follow-up discussions with the management. It noted that Esprit's net profits in the first half had missed its forecast of HK$799 million, although the group had managed to stabilise sales in Europe.

Esprit has announced plans to close loss-making stores, including its entire operation in North America by the end of March. It has also made several high-profile hires.

Holly Li, the former general manager of Adidas, North China, is now Esprit's China chief executive. It has also hired Melody Harris-Jensbach, a former senior executive at Puma, to revitalise the brand.

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