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SCMP Reporter

Dedicated followers of Hong fashion retail plays swear by Esprit Holdings. Analysts are pointing to the European angle of the Esprit story as one of the stock's drivers for this year.

As the bickering continues about the severity of the slowdown facing the United States and its effect on the global economy, Europe is highlighted as a good shelter from the upcoming storm.

'If you are bearish worldwide, you are probably looking at Europe as the only decent opportunity arguably anywhere over the next two to three years and Esprit's well-positioned there,' an analyst at a US house said.

However, this analyst also had mixed feelings with Esprit's decision - announced this week - to re-enter the cut-throat British retail market.

The company retreated three years ago from the British market following losses of GBP1 million (about HK$11.45 million) a year.

'If they do it the right way, it's a deal positive. If they do it the right way, it should work,' he said.

However, the analyst warned that the British retail market had not become any easier to crack during Esprit's three-year absence.

'It is ruthless, brutally competitive,' he said.

He also questioned Esprit's decision to open a 2,200 sq metre store on London's Regent Street - near Oxford Street, the capital's shopping centre.

'I don't think people are going to be too hot and receptive if they saw an Esprit shop in Regent Street. On balance, Germany's the future for that business, it's not the UK,' he said.

Despite the company's move back into Britain, analysts still hold up Germany as the goose to lay Esprit's golden egg.

'Germany's very fragmented - there's pots of growth opportunity in Germany still and I think they recognise that Germany will be their meat and drink for some time,' he said.

UBS Warburg analyst Ada Poon said that this year in particular could be the company's German breakthrough, reinforced by a strengthening euro as well as the government's sweeping tax-reform package.

'The other factor will be the relaunch of Esprit Europe,' she said.

Plans to list Esprit Europe on the Frankfurt Stock Exchange were shelved last June because of volatile market conditions.

Reports surfaced last week that the company could be going for another try as early as May.

'This is the year if they are ever going to launch it because the German tax rate will be a positive factor and European growth is still going at a very attractive rate,' Ms Poon said.

Indosuez WI Carr analyst Alan Wong has a HK$9.25 target on the stock, which closed the week at $8.35, but said that 'it is fairly conservative - it might go up another 25 cents'.

Although competitor Giordano has a slightly lower March 2001 price-earnings multiple than Esprit's 17 times, Mr Wong said that, overall, the price of admission was justified by Esprit's Old World growth story.

'We are willing to pay a little more for Esprit because it has generated consistent returns and longer term we think the brand has more potential,' he said.



Followers of fashion take shine to Esprit