Esprit Holdings fell nearly 17 per cent to a two-month low yesterday, reflecting investor concern about the company's financial situation. After the market closed on Monday, Esprit announced a proposal to issue one rights share for every two existing shares at HK$8. That represents a discount of 36 per cent based on Monday's closing share price. The proceeds of HK$5.2 billion will be used to fund the company's plan to revive its brand. The company also late on Monday released sales figures for the quarter to September, saying turnover slumped 23 per cent to HK$6.6 billion from a year ago. At one point yesterday, the price of its shares plunged 16.7 per cent on the Hong Kong stock exchange, the largest decline in four months, before closing at HK$11.26 each, down 9.5 per cent in a firmer overall market. The stock market was closed on Tuesday for a public holiday. "This issue of rights shares may suggest a deteriorating cash flow and lengthening of working capital cycle," said Tony Tseng, an analyst at Merrill Lynch. He said the worse-than-expected wholesale revenue last quarter could be attributed to the challenging conditions in Europe, which accounts for 80 per cent of Esprit's turnover. In addition, limited product break-through and possible excess inventory for wholesale customers were also reasons for its slow business recovery, Tseng said. He rates the company "underperform" with a target price of HK$8.10 a share. Esprit, which competes against such apparel makers as Gap, Inditex's Zara and H&M, launched a HK$18.5 billion transformation plan 18 months ago. It is seeking to improve product quality and design, refurbish shops and streamline operations. Ben Kwong Man-bun, chief operating officer of KGI Asia, suggested individual investors adopt a "watch-and-see" attitude regarding the rights issue plan. "The future of the company is still unclear, and there's no sign of a 'turnaround'," said Kwong. He said the company is likely to tap the stock market again for funds given the scope of the transformation plan. US hedge fund Lone Pine Capital is the largest shareholder in Esprit, with a holding of 14.17 per cent, while non-executive director Friedrich Jurgen Alfred Rudolf owns 6.81 per cent .