Esprit reverses huge loss with HK$210m net profit on cost cuts
Apparel retailer forecasts better margins as full year surprises at HK$210m after huge loss
Esprit Holdings shares spiked 9 per cent in early afternoon trading yesterday - the most in almost two years - after it reported better-than-expected annual results.
The apparel retailer posted a net profit of HK$210 million for the year ended June 30, turning around a net loss of HK$4.4 billion a year earlier. The median estimate from 10 analysts compiled by Bloomberg was HK$151 million. Revenue dropped 6.5 per cent to HK$24.2 billion from HK$25.9 billion as the company closed some unprofitable stores.
The Hong Kong-based company also forecast a better profit margin as it would "actively protect the profitability" of its product lines by improving supply chain management, the company said.
However, Esprit's future is still full of challenges, according to Lyncean Securities managing director Francis Lun Sheung-nim. "After jumping 9 per cent, the rise in Esprit shares has narrowed, reflecting [the fact] that investors are better understanding their statistics."
The increase in profit is mainly the result of cost cutting, not from better sales, said Lun. "The competition for a clothing retailer like Esprit will be intense because its branding doesn't help it very much compared with brands like Zara and H&M."
Turnover of Esprit branded products declined 5.5 per cent in Hong Kong dollar terms.
Esprit said in a filing to the Hong Kong stock exchange that "we begin the new financial year in a stronger position", adding that it plans to "stabilise the controlled space development" in its retail channel and reduce the rate of decline of controlled space in its wholesale channel.
Lun said that e-commerce is not a threat to Esprit, as the company is focusing on brand marketing and serves different consumer groups compared with the e-commerce sector.
Esprit said it will "remain selective" with its capital expenditure in the new financial year, but will increase the amount compared to last year.
Capital expenditure fell 59.2 per cent year on year to HK$375 million in the previous financial year.
The shares closed yesterday at HK$12.74, up 2.7 per cent, while the benchmark Hang Seng Index was down 0.5 per cent.