Esprit Holdings shares continued their recent slump, diving by more than 10 per cent yesterday, making it one of the worst performers among Hang Seng Index constituent stocks. Esprit's focus on Europe has fuelled fears that it will not be able to bounce back in the near future after announcing a massive drop in annual profit last Thursday. Esprit shares fell 11 per cent to close at HK$8.96 last night. In a research note yesterday, Morgan Stanley warned that Esprit is among the Asian companies that carry the most risk in relation to Europe's sovereign debt crisis. According to Esprit's full-year report, Europe accounted for 79 per cent of its revenue for the year to June. Germany is Esprit's biggest single market, contributing 42 per cent of sales. Kenny Tang Sing-hing, the general manager of AMTD Financial Planning, said the stock would continue to do badly until the clothing chain recovers sales growth. 'The growth momentum to drive its wholesale business is disappearing, while the retail channels have been greatly affected by the brand's weak image,' Tang said. 'It will be very hard to change the situation in the short term.' The retailer expects turnover for the year to June next year to fall by 3-5 per cent in local currency terms, and the operating profit margin to decline to 1-2 per cent. Esprit posted a 98 per cent plunge in net earnings to HK$79 million for the year to June, the third consecutive annual decline, as the company withdraws from the unprofitable North American market and plans to close 80 stores in Europe and Asia. The company, which says it has 'lost its soul', has launched a HK$18 billion plan to revive its brand. But investors fear the heavy investment will only further pressure earnings and stock performance in the coming years. 'Where will this money come from? It is very likely Esprit will raise funds in the capital markets or cut dividend to fund the brand revival plan,' Tang said. Bloomberg quoted Aaron Fischer, head of consumer research at CLSA Asia-Pacific Markets, as saying in a note to clients yesterday that the market is trying to work out Esprit's floor price, 'based on the brand value and the power of its retail network'. Esprit has lost part of its customer base to rivals H&M, Gap and Zara. Ronald van der Vis, Esprit's chief executive, said last week that its product designs had become 'too safe and boring'. To fix that, it now plans to establish a trend division in Paris and a design hub in China, a key market in the company's future strategy.