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Esprit Plans $671 Million Rights Offer After Sales Drop

Esprit Holdings Ltd. (330) plans to raise as much as HK$5.2 billion ($671 million) in a rights offer to fund efforts to revive its brand after reporting a first-quarter sales decline.

The apparel company will offer existing investors the right to buy one new share at HK$8 each for every two held, Esprit said in a statement to the Hong Kong stock exchange yesterday. Sales dropped 23 percent to HK$6.6 billion in the first quarter, it said in a separate statement.

Esprit is planning a rights offer after missing earnings estimates for five straight years and losing customers to rivals such as Inditex SA (ITX)’s Zara. Chief Executive Officer Jose Manuel Martinez Gutierrez took over in September after the previous CEO and chairman quit within 24 hours of each other earlier in 2012.

“This is definitely going to be a blow to investors,” said Steven Leung, a Hong Kong-based institutional sales director at UOB Kay Hian Ltd. “The rights issue may reflect a bigger cash flow problem. The company is spending way more than it earns and we haven’t seen much progress in the transformation.”

Esprit will issue no more than 656 million rights shares, it said yesterday. Excluding store closures, sales declined 11 percent on a local-currency basis, it said. First-quarter sales declined 0.2 percent on a comparable basis.

Total proceeds from the issue will be at least HK$5.02 billion, the company said. Esprit doesn’t have plans for further fundraising and will stick to the existing budget of HK$18.5 billion for its transformation strategy, Chief Financial Officer Thomas Tang told reporters on a conference call yesterday.

Management Change

Martinez took the place vacated by Ronald Van der Vis, who announced his departure in June. Chairman Hans Joachim Koerber quit a day after Van der Vis. The departure of both executives had raised doubts over succession as Esprit struggles to restructure its business.

Esprit will see “a slow turnaround,” Martinez said on yesterday’s call. Van der Vis, hired in 2009, last year laid out a turnaround plan that included makeovers of existing stores and new ones in China.

Esprit reported sales of HK$30.2 billion in the 12 months to June 30, a decline of 11 percent. Net income in the second half was HK$318 million, compared with a loss of HK$2.06 billion a year earlier, according to data compiled by Bloomberg.

Esprit’s capital expenditure is expected to reach HK$1.5 billion in the current financial year, compared with HK$1.4 billion in the year just ended.

The Hong Kong-traded apparel company was established in 1968 in San Francisco, when Susie and Doug Tompkins started selling clothes out of the back of their station wagon.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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