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Esprit to Save HK$1 Billion on India, Indonesia Sourcing

Esprit Rises After Posting Better-Than-Expected Margin
Clothes are displayed for sale at an Esprit Holdings Ltd. store in Hong Kong. Photographer: Jerome Favre/Bloomberg

Esprit Holdings Ltd., the clothing retailer pushing to recover from a three-year earnings decline, expects to save HK$1 billion ($129 million) by June 2015 as it adds sourcing offices in India and Indonesia.

Esprit jumped the most in 14 years in Hong Kong trading yesterday after saying efforts to revive its brand and close unprofitable stores are helping results. The clothing retailer will this year add two sourcing offices in India and Indonesia and 40 to 50 stores in China as part of its drive to boost profit, Chief Executive Officer Ronald Van der Vis said in an interview in Hong Kong yesterday.

Van der Vis plans to turn the company around by improving fashion designs to increase revenue, while boosting China sales. The retailer, which in September said its brand had “lost its soul,” reported better-than-expected first-half operating margin yesterday.

“Esprit had become too much a T-shirt company,” Van der Vis said in the interview. “The customers I spent a lot of time talking to said: Please give me back the Esprit I used to know, more fun, dynamic and more fashionable. So the journey is basically bring it back.”

Net income was HK$555 million in the six months ended Dec. 31, compared with HK$2.14 billion a year earlier, the company said in a statement to Hong Kong’s stock exchange yesterday.

“Many people were thinking it would make a loss, but it came out with a net profit,” said Andrew Sullivan, principal sales trader at Piper Jaffray Asia Securities Ltd. in Hong Kong. “It also sounds more positive. The company is well-positioned to make progress in restructuring despite the tough operating environment.”

Stock Surge

Esprit rose 25 percent, the biggest increase since Jan. 21, 1998, to HK$17.78 in Hong Kong trading yesterday. The stock has risen 77 percent this year, compared with a gain of 16 percent in the Hong Kong benchmark Hang Seng Index.

The company saw “significant improvement in retail performance” in the second quarter, it said in yesterday’s statement. “Consumers are putting us back on their shopping lists, which is the first step needed before seeing improvements in traffic, sales and loyalty,” Esprit said.

The new China stores will help boost growth and the company has established design teams in Paris and in China, Van der Vis said in yesterday’s interview. The China team will deliver its first products in August this year and the Paris team will deliver in September, he said.

Holly Li, Adidas AG’s former general manager for north China, joined Esprit as China chief executive officer on Feb. 1.

Margin Surprise

First-half operating profit margin was 4.7 percent, compared with the company’s “planned” 1 percent to 2 percent, according to the statement yesterday.

Second-quarter same-store sales fell 1.5 percent compared with an 8.5 percent decline in the first quarter, the company said at a briefing in Hong Kong yesterday.

The brand, established in San Francisco in 1968, plans to close all stores in North America after failing to find a buyer for the loss-making business. The company will end operations in North America by March 31, it said yesterday. The U.S. and Canada operations lost HK$1.6 billion over four years, Esprit said last year.

Esprit in September reported full-year profit plummeted 98 percent to HK$79 million on costs for closing some stores worldwide and selling its operations in the U.S. and Canada. It was the third consecutive decline in annual profit for the casual clothing maker that gets most of its sales in Europe.

The company has said it has begun “grouping various strategic functions” in its business headquarters in Ratingen, Germany.

Esprit also hired Melody Harris-Jensbach, a former Puma AG executive, to supervise product development and design. She joined as chief product and design officer on Jan. 9.

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