June 28 (Bloomberg) -- Esprit Holdings Ltd., the best- performing stock in Hong Kong's benchmark index in the past five years, plans to spend $1 billion to acquire an international luxury brand by next year to boost sales of high-margin clothing.

``I would like to integrate such a brand as a better sister of Esprit and as a role model to access good designers who normally wouldn't want to work for Esprit,'' Chief Executive Officer Heinz Krogner said in Hong Kong. ``It doesn't need to be a huge company and it should not dilute earnings. We aim to buy knowledge of the luxury segment, not revenue.''

A luxury brand may boost Hong Kong-based Esprit in Europe, where it earns most of its revenue selling mass-market products such as jeans for about 70 euros ($94) and T-shirts for 20 euros. Esprit sells clothes in more than 40 nations and aims to open a new store, including franchised outlets, every day in the year from July.

``Buying a luxury brand makes sense because Esprit wants to position itself in Germany at the higher end,'' said Erica Poon Werkun, a Hong Kong-based analyst at UBS AG. ``Although Esprit targets the mass market, its products are more expensive than those of its competitors.'

Kroger has previously expressed interest in Donna Karan International Inc. LVMH Moet Hennessy Louis Vuitton SA, the world's biggest luxury-goods company, bought Donna Karan in 2001 for $243 million.

Esprit's profit in the six months ended Dec. 31 surged 28 percent to HK$2.4 billion ($307 million) on 25 percent more sales from Europe.

Best Performer

Of the Hang Seng Index's current 39 constituents, Esprit is the best performing in the past 10 years. Since joining the benchmark in December 2002, the company's shares have surged 1,660 percent. The stock was trading up 0.4 percent to HK$97.95 at the midday trading break in Hong Kong.

British fashion retailer Jaeger Group Ltd. said yesterday it's received interest from potential buyers. The 123-year-old retailer, owned by entrepreneur Harold Tillman, has 129 U.K. outlets, 65 of them in department stores.

Inditex SA, Europe's biggest clothing retailer, has more than tripled in size in six years to 3,200 stores. The Spain- based retailer is also opening at least one store a day, aiming to add as many as 520 stores in the year to January.

Hennes & Mauritz AB, Europe's second-largest clothing retailer, planned to add 95 new stores worldwide in six months. Profit in the three months ended May rose 31 percent on sales from 1,400 stores in 28 countries.

2009 Target

Esprit aims to boost sales by two-thirds to $5 billion by 2009 and add 400 stores in three years. Currently, it generates about 86 percent of its revenue from Europe with Germany the biggest single market. Sales from Asia Pacific account for 11.6 percent of the group's total with the rest from North America.

``Our focus is to maintain double-digit growth in Europe, increase the growth in Asia to more than 20 percent and do the same in America,'' said Krogner. ``Asia and America have to grow faster than Europe because they are relatively small at this moment but the potential is as good as in Europe.''

The company invests $20 million a year in North America to boost growth in the region.

Esprit's business in mainland China had a 50 percent surge in profit on 34 percent more turnover last year through 730 self- operated and franchised stores, according to the annual report of China Resources Enterprise Ltd., which holds 51 percent of the venture.

The retailer owned 12,090 wholesale distribution channels, 638 directly managed retail stores under the brands Esprit, edc and cosmetic trademark Red Earth by the end of last year.

To contact the reporter on this story: Ting Ting Ng in Hong Kong at tng9@bloomberg.netNikola Kemper in Hong Kong at nkemper@bloomberg.net

Last Updated: June 28, 2007 00:36 EDT