Esprit profit misses forecasts, shares fall 8pc
Retailer Esprit Holdings posted a jump in full-year net profit after store closure-related costs were less than expected but missed analysts’ forecasts as a slowing global economy weighed on sales, sending its shares plunging 8 per cent.
Esprit, which sells everything from bed sheets to jeans and generates three-quarters of its sales in Europe, has been trying to restructure its business as it struggles with a slump in demand due to the euro zone debt crisis.
The retailer in August hired an executive from Zara owner Inditex as its new CEO, reassuring investors about the company’s restructuring drive following uncertainty after a management reshuffle.
“Looking ahead, the macro environment in FY12/13 continues to present challenges and uncertainties, such as slowing economic growth in China and the unresolved European debt crisis,” Esprit said in a statement, adding that it would continue this year to implement its turnaround plan “rapidly and consistently.”
Esprit, which competes with Swedish clothing retailer Hennes & Mauritz and Spain’s Inditex, reported a net profit of HK$873 million (US$112.6 million) for its fiscal year ended in June, missing the average estimate of HK$1.01 billion in a poll of 10 analysts by Thomson Reuters.
The result was higher than the HK$79 million profit posted a year earlier when the company took a one-time charge of HK$2.3 billion to set aside provisions for the closure of stores. The overall closure costs were less than expected and the company was able to write back HK$696 million of those provisions in the latest term.
Turnover fell to HK$30.17 billion from HK$33.77 billion a year earlier, due to the sale of its North American operations, store closures and a tough business climate, it said. Retail turnover fell 6.1 per cent in local currency terms and wholesale turnover dropped 16.5 per cent.
The company has earmarked HK$1.5 billion for capital expenditure for coming year, of which HK$400 million will be invested in new store openings, HK$700 million in refurbishments of existing stores and HK$200 million will be for IT projects.
Esprit also said its new chief executive, Jose Manuel Martmnez Gutiirrez, would take up his post on Sept. 26.
Inditex, the world’s largest clothing retailer, last week beat expectations with a 32 per cent jump in first-half profit, boosted by rapid expansion in fast-growing emerging markets.
Esprit, which also competes with and US group GAP and Japan’s Fast Retailing, said last year that it would invest more than HK$18 billion (US$2.3 billion) up to 2015 as part of its restructuring plan.
It also aims to double China sales to around HK$6 billion over the next few years and expand its points-of-sale network to 1,900 from 1,000.
Esprit, founded in 1968 in San Francisco by Susie and Doug Tompkins who started selling clothes out of the back of their station wagon, shut all its stores in North America as of the end of March.
The company has a market value of around US$2.2 billion, down from roughly US$8 billion at the end of 2010. The plunge in its share price had prompted speculation it could be a takeover target.
Shares of Esprit have surged 29 per cent so far this year, outpacing an 11 per cent rise in Hong Kong’s benchmark Hang Seng Index. The stock was down 8 per cent after the results on Wednesday, lagging 0.9 per cent fall in the benchmark index.