Esprit Won’t Meet Plan for HK$1 Billion Annual Savings by 2015

Esprit Holdings Ltd. (330), the Hong Kong-based apparel seller that last year lost two top executives, said it won’t save HK$1 billion ($129 million) per year by June 2015 as planned as its performance isn’t meeting expectations.

The savings targets and other projections laid out under a transformation plan announced in 2011 are “no longer applicable,” Chief Executive Officer Jose Manuel Martinez Gutierrez said on a webcast. The plan was rolled out by the company’s previous CEO Ronald Van der Vis.

The company this month forecast a “substantial” annual loss on store closures and a drop in the value of goodwill. The clothier has invested in advertising and store upgrades as it faces competition from rivals including Hennes & Mauritz AB (HMB), Fast Retailing Co. (9983) and Inditex SA (ITX)’s Zara.

Esprit plans to cut expenses and focus on improving profitability in 6-12 months, Martinez said.

Esprit aims to improve its business and distribution by cutting loss-making retail stores, unproductive product lines, unprofitable wholesale business and exiting loss-making countries, Martinez said today. It is also targeting keeping operational expenses below 50 percent of sales, he said.

The company expects a further fall in sales in the fiscal year ended June 2014 as it shuts more stores and a recovery in business to begin over fiscal 2015, Martinez said today.

Esprit lost two executives in 48 hours in June. Former Chairman Hans Joachim Koerber resigned a day after then-Chief Executive OfficerVan der Vis quit. The departures fueled doubt over the company’s ability to see its transformation plan through. Van der Vis was replaced by Martinez.

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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