Esprit Posts First Annual Loss Since IPO as Sales Slump

Esprit Holdings Ltd. (330), the apparel seller whose two top executives quit last year, reported its first annual loss since a 1993 listing as sales dropped and it shut some stores. The stock plunged.

The company reported a loss of HK$4.39 billion ($566 million) for the year ended June, wider than the average HK$3.4 billion loss projected by 14 analysts surveyed by Bloomberg.

The Hong Kong-based company, which is pushing to curb costs, will return to profitability by the end of the current fiscal year ending June 2014, Chief Executive Officer Jose Manuel Martinez Gutierrez told reporters in Hong Kong. Esprit, which gets more than 78 percent of its sales from Europe, has seen sales slump in the region and battled competition globally from rivals including Hennes & Mauritz AB (HMB) and Inditex SA (ITX)’s Zara.

“It’s hard for the company to turn around its operations once the brand has lost its appeal,” said Francis Lun, Hong-Kong based managing director at Lyncean Securities Ltd.

The stock closed 7.2 percent lower at HK$11.66, the biggest decline since October 2012. It had risen as much as 5.6 percent ahead of the earnings report.

Scaling Back

Esprit today forecast “slight” declines in revenue and gross profit margins for the current fiscal year. It may raise funds by issuing debt, Martinez said. The company will expand selectively until sales improve, Chief Financial Officer Thomas Tang said.

Photographer: Munshi Ahmed/Bloomberg

A shopper exits an Esprit Holdings Ltd. store on Orchard Road in Singapore. Close

A shopper exits an Esprit Holdings Ltd. store on Orchard Road in Singapore.

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Photographer: Munshi Ahmed/Bloomberg

A shopper exits an Esprit Holdings Ltd. store on Orchard Road in Singapore.

“Esprit is cutting costs on marketing, scaling back on expansion to buy time for reviving sales,” said Barclays Capital analyst Vineet Sharma. “Whether they will be successful or not, we don’t know. But they put priority on stopping the company from bleeding.”

Annual sales fell 14 percent, with Europe dropping 11 percent, the company said today. Results were also hurt partly by a goodwill impairment of about HK$2 billion related to China investments.

In the short term, the company doesn’t foresee “a visible improvement of the top line,” it said. The weak macroeconomic environment will remain a pressure and the measures being taken to revive results are still a work-in-progress, it said.

The brand aims to improve its business and distribution by cutting money-losing retail stores, unproductive product lines, unprofitable wholesale business and exiting countries where it’s incurring losses, CEO Martinez said in May.

Esprit lost two executives in 48 hours in June last year. Former Chairman Hans Joachim Koerber resigned a day after then-Chief Executive Officer Ronald Van 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, a former Inditex manager.

Photographer: Jerome Favre/Bloomberg

Mannequins display clothes for sale at an Esprit Holdings Ltd. store in Hong Kong. Close

Mannequins display clothes for sale at an Esprit Holdings Ltd. store in Hong Kong.

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Photographer: Jerome Favre/Bloomberg

Mannequins display clothes for sale at an Esprit Holdings Ltd. store in Hong Kong.

In February, Esprit posted a first-half loss of HK$465 million.

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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