Esprit Holdings

Esprit's bottom line sags despite restructuring

Fashion chain's chief executive says more time needed to see benefits of overhaul but some positive signs detected in womenswear

PUBLISHED : Wednesday, 27 February, 2013, 2:48pm
UPDATED : Thursday, 28 February, 2013, 4:48am

The big turnaround for Esprit is unlikely to come any time soon, but the new chief executive of the embattled fashion group - which lost HK$465 million in the six months to December - said he saw positive signs emerging.

Jose Manuel Martinez Gutierrez, who replaced his predecessor in September, said yesterday he was fine-tuning a HK$18 billion restructuring plan introduced two years ago.

While it would take time for the plan's benefits to translate into operational results, he said, there was a gradual softening of the declining trend in wholesale orders, especially this month.

"The outlook for the second half of our financial year is full of uncertainty. We started in a very challenging position, and the traffic of our shops was declining in general … But we started to see some positive signs in the women's collection," Gutierrez said.

Slow sales and divestment of Esprit's North American business reduced interim turnover by 13.4 per cent to HK$13.55 billion, while operating expenses remained high at HK$7.18 billion, as wholesalers returned nearly HK$4 billion worth of aged inventory.

The company set aside HK$422 million in provisions for traders' debt, taxation and its ageing inventory.

Gutierrez said the firm aimed to save HK$600 million in costs for the year to June by cutting suppliers and factories.

Expenditure on marketing and advertising will also be adjusted according to the sales performance of specific regions, but analysts said the room to manoeuvre was limited.

"They may be cutting advertising expenses, but their cost structure is still pretty set," said Gabriel Chan of Credit Suisse.

They may be cutting advertising expenses, but their cost structure is still pretty set

"Also, the prices of spring and summer clothing are generally lower than for winter. Although [Gutierrez] said sales are better in February, we are only talking about a narrowing decline here, so I fail to see how there can be any improvement for the second half [of Esprit's financial year]."

Most analysts said it would be a long time before the transformation plan bore fruit, and they did not expect a solid turnaround in financial performance until at least next year.

While many Western brands turned to China's vast market for growth as the European and North American economies stagnated, Esprit, which derived only a fifth of its sales from the Asia-Pacific, said it did not plan to expand strongly in the region in the near future.

"Our top priorities now are to first stabilise business performance by aggressively cutting costs, activating the top line and reducing inventory levels," Gutierrez said.

The fashion chain still plans to open six more shops around the world in the half year to June to help clear old stock.

Esprit would soon roll out its first collection by the revamped design team for spring, Gutierrez said.

Pricing will be similar to that in the past, but discounts will be offered to boost sales.

The group's shares dropped to a four-month low of HK$9.82 yesterday before climbing back to close with a loss of 0.79 per cent at HK$10.10.