Esprit CFO Resigns Amid Efforts to Rebuild After Profit Plunge

Esprit Holdings Ltd. Chief Financial Officer Chew Fook Aun
Chew Fook Aun, chief financial officer of Esprit Holdings Ltd. Photographer: David Paul Morris/Bloomberg

Esprit Holdings Ltd. Chief Financial Officer Chew Fook Aun quit for personal reasons as the largest Hong Kong-listed apparel company seeks to revive earnings after profit plunged 98 percent last fiscal year.

Chew’s resignation will take effect by June 1 as he is “unable to spend the required time in Europe,” Esprit said in a statement yesterday. The Hong Kong-based company, which on Sept. 15 said its brand had “lost its soul,” faces declining sales on the continent, where it made 79 percent of revenue in the 12 months through June.

Chief Executive Officer Ronald Van der Vis has said he plans to turn the retailer around by improving fashion designs to revive earnings in Europe while doubling China sales in four years. Esprit is looking in and out of the company for Chew’s replacement, Van der Vis said on a conference call yesterday.

“It’s going to raise a lot of questions as to why a member of the senior management resigns so suddenly,” Francis Lun, managing director at Lyncean Holdings Ltd. said. “It’s going to be a blow to investor confidence, especially as the company is undergoing some strategic changes and re-branding.”

Esprit rose the most in almost two months on Hong Kong’s stock exchange yesterday, after saying it would would a hold conference call at 5 p.m. local time. It climbed 8.7 percent, the biggest gain since Oct. 13, to HK$11.98 at the 4 p.m. close of trading, making it the biggest gainer on the benchmark Hang Seng Index.

Transformation Plan

The stock has plunged 91 percent from its highest close of HK$127.744 on Oct. 30, 2007 as rivals including Hennes & Mauritz AB and Inditex SA’s Zara lured customers away. It has slumped more than 34 percent since Sept. 15, when it reported full-year earnings.

The casual clothing chain has begun “grouping various strategic functions in its business headquarters in Ratingen, Germany,” the company said in the statement. “This would also require the group chief financial officer to travel extensively to Europe to supervise the implementation of the transformation plan.”

It has no plans to move its financial headquarters out of Hong Kong, Van der Vis said on the conference call.

Same-store sales in Europe fell 9.2 percent in local currency terms in the three months through September. Esprit on Oct. 31 said it faced ’’an increasingly challenging business environment’’ in its biggest market.

Closing Stores

Chew was appointed chief financial officer in February 2009. He held the same position at The Link Management Ltd., manager of the Link Real Estate Investment Trust. He was also CFO at Kerry Properties Ltd. from 1996 to 2004.

Chew, who boosted his stake in Esprit last month by buying 100,000 shares, will pursue a career “outside the company,” according to the statement.

The company posted a 98 percent drop in net income last fiscal year because of the cost of closing stores in Europe and selling its U.S. and Canada operations. Sales in the year through June increased less than 1 percent after declining in the previous two years, according to data compiled by Bloomberg.

The retailer that started in California more than 40 years ago hired the brand director of Hennes & Mauritz in 2010 to rejuvenate its fashions, which Van der Vis said in September “became too safe and boring.”

Esprit hired Holly Li, Adidas AG’s general manager for north China, to be its CEO in the country starting Feb. 1, it said last month.

Gisele Bundchen

Van der Vis plans HK$7 billion in capital spending over four years, mostly to expand or refurbish stores. A further HK$11.5 billion will be allocated to operational spending, of which HK$6.8 billion is for branding, Van der Vis said in September at his earnings presentation, made in front of a backdrop featuring supermodel Gisele Bundchen.

A marketing campaign has already increased “consumer consideration” in both Germany and China, according to an investor presentation last month. Esprit made 42 percent of last fiscal year’s HK$33.8 billion sales in Germany, with 7.9 percent coming from China, according to data compiled by Bloomberg.

Esprit, with a market value of about $2 billion as of yesterday, traded at 46 cents per dollar of revenue, the second lowest of clothing companies valued at more than $1 billion, according to data compiled by Bloomberg. The only company that ranked lower, at 43 cents, was Aoyama Trading Co., a Japanese menswear chain that has reported five consecutive years of declining profit, the data show.

H&M traded at 3.25 times its sales yesterday, while Inditex was at 3.02.

Esprit is “on track” with its plan to close 80 stores worldwide, including 24 in Germany, according to the investor presentation.

It had more than 1,100 directly managed retail stores, of which 300 were in China, as of June. Esprit also had more than 11,700 wholesale outlets, which include franchises and shops in stores.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE