Esprit warns of US$125m loss as China business takes a hit
Once the darling of retail analysts, the stock has lost 97pc since prices peaked in 2007
Hong Kong-listed fashion house Esprit Holdings has pledged to continue to grow its China operations despite warning of a net loss of up to HK$980 million (US$125.36 million) due largely to a “significant decline” in its mainland business.
The company said it expected to report a net loss of between HK$950 million and HK$980 million for the six months ended December 31, 2017, compared with a net profit of HK$61 million for the same period last year in a filing to the local bourse on Wednesday.
It cited a full impairment due to the decline in its China business in recent years, larger than expected revenue drop in the second quarter ended December 31, and taxation expense of about HK$5 million as reasons for the expected net loss.
Despite the declines, the company said it was undaunted.
“Esprit is totally committed to make our China business successful and to grow our business in the country,” said Thomas Tang, executive director and chief financial officer of the company in an email reply.
“We have created a dedicated team to strengthen our business in China, and this includes a new product line, a new store concept, a more attractive wholesale model, and a separate local supply chain to serve the market,” he said.
Tang said the actual operational loss before interest and tax was likely to range between HK$150 million to HK$180 million, below the company’s expectations.
The Hong Kong-based company, which was founded in 1968 in the US, generates around four-fifths of its revenue from European countries including Germany. But it has in the past five years turned its focus to the China apparel market, which is valued at around US$300 billion according to OC&C Strategy Consultants.
The apparel maker has passed its prime after 2007, the year when sales recorded the 15th consecutive year of double-digit growth. Amid rising competition from e-tailers and a more sophisticated clientele in China, the company has been hit by weak sales at its bricks-and-mortar retail stores.
“Outlook is bleak for Esprit, the brand is lost and has been out of favour among consumers for too many years,” said Mariana Kou, head of China education & Hong Kong consumer at CLSA.
One factor being that once price-conscious Chinese consumers had in the recent years become more sophisticated and adapted to fashion-forward trends, said Kou.
Shares of Esprit closed down more 16.18 per cent to HK$3.42 on Thursday. The company has seen its shares shed almost 97 per cent from its peak of HK$122 in 2007.
As of 30 September 2017, the company has 642 directly managed retail stores and 5,900 wholesale retail points of sale in more than 40 countries.