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Liz Mak

Weighed down by slowing economies in Germany and China and structural weakness in the euro, fashion retailer Esprit Holdings reported a 19.8 per cent drop in annual turnover on Wednesday.
Lower sales and mounting provisions resulted in a net loss of HK$3.7 billion for the year to June, compared with a profit of HK$210 million in the previous year.
The board decided against paying a dividend.
"The year has been very intense for Esprit - performance has been extremely challenging," chief executive Jose Manuel Martinez said.
Among the reasons blamed for the poor performance was the weather in Europe.
"The exceptionally warm winter in Europe … placed extreme pressure on sales and prices during the entire 2014 autumn-winter season," chief financial officer Thomas Tang Wing-yung said.
With 82.8 per cent of the group's turnover generated in Europe, the company was weighed down by the structural weakness of the euro, which depreciated 11.4 per cent against the Hong Kong dollar over the financial year.
"Only 15 per cent to 20 per cent of our finished goods are purchased in euros," Tang said, indicating that the benefit of depreciation had not been passed on to the group's operation.
With limited prospects for top-line growth, Esprit has taken the axe to operational expenditure.
Under the new vision for Esprit, Martintez wants to exert more control on its supply chain and on how his products are produced by implementing a vertical model.
"There will be more efficiency in sales and products for distribution," he said. "In the meantime, we have brought very little disruption to our business and business partners.
"We don't think we are done with the strategic policy - but we have done the biggest part to turn around the company."
Esprit has also taken some radical moves in its core European market of Germany. It has cut its wholesale selling space by 6.3 per cent and its retail space by 2.8 per cent, closing a chain of seven stores that it felt had little chance of turning around.
An even more aggressive 15.1 per cent cut to wholesale space was seen in the rest of Europe.
In markets further afield, the company saw through the exit of its Russia wholesale partner and restructured 21 franchise locations to sell directly to Swedish and Polish customers.
The Asia-Pacific region was responsible for 16.5 per cent of revenue, of which China represented 40 per cent of sales. But even there it has not been faring well. Tang said store traffic had been dropping, while the performance of its department store partners had been weak.
After a painful near 50 per cent cut in wholesale space and 7.3 per cent reduction in retail selling space, Tang said: "We are encouraged to see wholesale partners have started to restock, which should provide some uplift."
But top-line figures may still narrow substantially.
On the upside, Esprit has no external debt. It has been running an average HK$5 billion cash buffer since its last rights issue in 2012.
Esprit's shares fell 0.89 per cent to close at HK$6.69 on Wednesday.


Esprit blames warm European weather for poor results

Esprit Holding is revamping its operations to ensure more efficiency in sales and products for distribution. Photo: Bloomberg

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Slower economies in Germany and China blamed too as fashion retailer reports net loss of HK$3.7 billion on a 19.8 per cent drop in turnover


.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Slower economies in Germany and China blamed too as fashion retailer reports net loss of HK$3.7 billion on a 19.8 per cent drop in turnover

Slower economies in Germany and China blamed too as fashion retailer reports net loss of HK$3.7 billion on a 19.8 per cent drop in turnover