Esprit shares plunge on rights issue

Shares in Hong Kong clothing retailer were down 15.9 per cent in early trade on Wednesday on the company’s plans to raise about HK$5.2 billion through a rights issue as part of a transformation plan to revive the brand.

To restore the brand's leading position, the company launched a massive transformation plan to improve product quality and design, reduce production lead times, refurbish existing shops and hire new management.

Last month, Jose Manuel Martinez Gutierrez, a former senior executive of Inditex, the parent company of Zara, took over as chief executive after his predecessor and the chairman quit within 24 hours in June.

Meanwhile, it also opened several "new concept" stores in Hong Kong, Beijing, Shanghai and other European cities.

Esprit will allot one rights share for every two existing shares at a price of HK$8, representing a discount of 36 per cent to its closing price on Monday.

Analysts warned this week that the group's restructuring and transformation would not occur overnight, predicting that its share price would remain under pressure for the moment.

Esprit, a rival of American clothing chain Gap and Spanish fashion brand Zara, last month said "it had lost its soul" as it admitted to neglecting the brand, which became less appealing. Sales declined sharply owing to the sluggish European market and stiff competition.