European debt crisis key to Esprit sales, outgoing chief says

Retailer says tough environment has resulted in exit from North American market and much of Europe amid management reshuffle

PUBLISHED : Thursday, 27 September, 2012, 12:00am
UPDATED : Thursday, 27 September, 2012, 3:48am

A deepening of the European debt crisis may hurt sales at clothing retailer Esprit, outgoing chief executive Ronald van der Vis warned yesterday.

Van der Vis resigned as the Hong Kong-listed retailer's chief executive and executive director yesterday, and will be replaced by former Inditex executive Jose Manuel Martinez Gutierrez.

"The situation in Europe is not improving and consumer confidence is highly impacted," said van der Vis. "If the crisis worsens in Europe, it will impact our business. If the crisis improves, our business will improve."

Martinez agreed the operational environment in Europe was quite tough, but added: "That doesn't mean we can't do well in Europe. We need to make sure we are one of those companies that do well in the current environment."

Europe accounted for 78.6 per cent of Esprit's turnover in the fiscal year to June. The company previously announced plans to close 80 loss-making stores, of which 65 are in Europe, 13 in Australia, one in Singapore and one in Hong Kong. Of those stores, 64 have already closed, said chief financial officer Thomas Tang Wing-yung. It had closed all 97 stores in North America and its New York headquarters, and laid off 1,600 North American employees, he said.

For the fiscal year to June, turnover was hurt by its divestment from North America, closure of loss-making stores and rationalisation of its wholesale channel, he added. Turnover fell 10.5 per cent to HK$30.17 billion while net profit jumped 1,005 per cent to HK$873 million, above a Bloomberg consensus estimate of HK$562.3 million.

Excluding write-back provisions for North American store closures, the firm incurred a loss in the second half, Tang said. "We experienced a depreciation of the euro. We incurred lots of marketing expenses in the second half."

Shares in Esprit shed 6.9 per cent to HK$12.34 yesterday.

In local currencies, the firm's European turnover dropped 10.5 per cent to HK$23.71 billion, while its China turnover declined 7.2 per cent to HK$5.53 billion. But China's share of revenue rose to 8.6 per cent from 7.9 per cent in the previous year, while Europe's share was flat and North America's dipped to 3 per cent from 4 per cent.

By 2015, it plans to expand its China presence from 191 cities to 400 and its point-of-sales locations will increase from 1,013 to 1,900. "It's doubling our China business," Tang said.

Esprit was looking to reduce sourcing from factories in China and rely more on other countries like Vietnam due to rising costs, he said.

Martinez would be entitled to an annual salary of €1.5 million (HK$14.96 million), a potential discretionary bonus of €1.5 million and a sign-on bonus of €1.25 million, said a Citic Securities report. He would also be granted 5 million stock options within six months, it said. In comparison, the chiefs at Inditex and British retailer H&M earned €4.3 million and €1.25 million respectively last year.