Esprit recovery still years away: analysts

Esprit Holdings, which is stepping up spending on its revamp plans, is expected to see an improvement in sales this year, but earnings recovery is still years away, analysts said.

The fashion retailer is seeking to raise about HK$5.2 billion in a rights offering to support the company's HK$18 billion transformation plan to revive the brand, according to a filing with the Hong Kong stock exchange on Monday night.

"This move seems to reflect the high level of risk around the execution of the transformation plan," said Aaron Fischer, head of consumer and gaming research at CLSA. "We do not think the market is appreciating the massive step in transformation costs that will eat into earnings and free cash flow for this year."

Fischer is expecting close to zero earnings for the company for the financial year to next June, although sales may improve thanks to better products and the relatively low comparison base last year. The earnings recovery, he said, will lag the sales recovery by at least two to three years.

Analyst Zhao Xiao, of China Merchants Securities, also said it would require a lot of patience to see the transformation bear fruit.

"The rights offer proves that Esprit is still committed to the transformation plan it launched 18 months ago," Zhao said.

"However, it may take longer than it had expected to make consumers believe again Esprit is an attractive brand and start to purchase the products."