Losses force Esprit to downsize

Following a first half loss of HK$238 million (US$30.6 million), fashion retailer Esprit plans to prune unprofitable outlets while improving productivity.

“In the very short term, we will continue to see the closure of unprofitable spaces from our retail store network and our wholesale partners’ points of sale,” the company says in its interim results announcement. It expects these actions will help group turnover remain stable although it may be reduced.

During the six months, the company posted a 13 per cent dip in sales to HK$9.31 billion. It says the losses are partly the result of the unfavourable impact of the euro depreciating against the Hong Kong dollar.
With a loss per share of 12 cents, the directors did not declare an interim dividend.

Meanwhile, the company has seen positive retail sales growth through both online and offline channels, particularly in Europe. Its challenges lie in its wholesale business, currency risks and lower performance in Asia.
It says the underperformance in the Asia-Pacific region was partly attributable to a combination of volatility in the financial markets, the economic slowdown in China and the devaluation of the yuan, which significantly dampened consumer sentiment.

Esprit’s largest geographic market, Germany, had HK$4.44 billion turnover, representing year-on-year growth of 1.5 per cent. For the rest of Europe the turnover of $3.38 billion was down from $3.92 billion of the previous year’s second half. Turnover in Asia Pacific amounted to $1.42 billion, a year-on-year drop of 6 per cent.
Esprit says it faces challenges ahead with volatility in the financial markets and economic uncertainty that could further dampen consumer sentiment, especially in Asia. And if the euro continues to be weak, it would put pressure on the group’s gross profit margin.

Meanwhile, the group is expecting an estimated net gain of about $725 million from the sale of six wholly owned property subsidiaries in Hong Kong, a deal finalised in December. Once the sales is settled, the group plans to lease back most of the properties.

Also the group has introduced efficiencies in its product development and supply chain processes, as well as developing a “more ambitious” commercial strategy using an omnichannel model. It has been using an intensive brand-marketing campaign since September to strengthen and rejuvenate its image.

Already it has seen positive sales performances, plus increased customer loyalty and better online and mobile sales.

“Driving these productivity gains further remains our top priority in the near term,” says the company, noting an increase to 49 per cent of eCommerce sales by mobile devices and a 92 per cent growth in smartphone sales.

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