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Esprit CEO Pledges Smooth Handover With Turnaround on Target

Esprit Holdings Ltd. CEO Ronald Van Der Vis
Ronald Van Der Vis, chief executive officer of Esprit Holdings Ltd. Photographer: Jerome Favre/Bloomberg

Esprit Holdings Ltd. Chief Executive Officer Ronald Van der Vis pledged to stay in the post for as long as a year after resigning this month and said the apparel maker is meeting turnaround projections.

The 44-year-old Dutchman is open to remaining on the board in the future and will “ensure a smooth transition,” he said in an interview in Amsterdam. Esprit isn’t in acquisition talks and has no accounting problems, he assured. Van der Vis also said he had “no idea” Koerber would quit soon after his own resignation was made public.

Esprit’s shares have tumbled 27 percent since the June 12 resignation of Van der Vis, with Chairman Hans-Joachim Koerber quitting the next day, as investors grew concerned that the exits were indicative of bigger problems. CLSA Asia Pacific Markets today downgraded the stock to underperform from buy, saying a turnaround plan may be more difficult to implement.

The chief executive officer, at the helm since 2009, last year laid out a turnaround plan to rejuvenate the clothing company that he said had “lost its soul” and is struggling to recover from a three-year profit decline. Under Van der Vis, Esprit is redoing existing stores and adding new ones in China in order to stem the exodus of customers to rivals including Hennes & Mauritz AB and Inditex SA.

“I’ll be available as long as the board wants me, as long as the shareholders want me,” said Van der Vis, who said he quit because his family didn’t want to relocate from the Netherlands. “The first leg of the transformation plan was very well on track.” Van der Vis said the board still backs the plan.

Same-Store Sales

The company has shown some improvement in same-store sales. Revenue at outlets open more than a year increased 0.5 percent in the three months ended March after dropping 4.6 percent in the six months to December 31. His departure has raised concerns that the company may falter in efforts to continue that growth.

“I am not convinced by the continuity of the transformation plan,” Gabriel Chan, a Hong Kong-based analyst at Credit Suisse Group said. “The new CEO may have his or her own ideas which are different from the plan and half of the board members that actually backed the plan are gone.”

Brand Revival

In an investor presentation last year, the company said it planned to spend more than HK$18 billion ($2.3 billion) over four years on efforts to revive its brand through more marketing and a bigger Chinese presence. The company said the transformation would aim to increase sales at a compound annual growth rate of 8 percent to 10 percent over four years and save HK$1 billion per annum at the end of the turnaround period.

Those targets are still in place, Van der Vis said. “In terms of sourcing, we’re ahead of schedule,” he said. “We are confident that we’ll be delivering the HK$1 billion annual savings after completion of the transformation plan.”

CLSA expects the company to deliver ’’a mild 2 percent CAGR revenue growth in the next three years with expansion in China offset by a weak Europe,’’ Hong Kong-based analyst Aaron Fischer wrote in the report.

The company’s biggest shareholder, hedge fund Lone Pine Capital LLC, backs the transformation plan, Van der Vis said. The fund bought 1.39 million Esprit shares on June 13 and 14.1 million shares on June 15, according to Hong Kong Stock Exchange data.

Esprit fell 2.2 percent to HK$9.88 at the close in Hong Kong trading. The stock has lost 1.4 percent this year, compared with a 2.5 percent gain in the benchmark Hang Seng Index.

Lone Pine

Lone Pine is “supportive of the transformation plan,” said Van der Vis. “I’ve met them on various occasions. They recently visited our new store in Regent Street in London and they really liked it.”

Despite the economic downturn in Europe, which accounted for about 80 percent of Esprit’s revenue in the six months ended December, the company isn’t facing inventory problems, Van der Vis said. “Under these circumstances, I’m actually very pleased at the progress we made so far and we do not foresee that we need to have a higher investment program than the one we announced last year.”

The inventory level at the end of the first half of the fiscal year was “only slightly higher than usual,” he said. “"Everybody was unhappy with the exceptionally warm weather especially in November and December.”

The board is looking to add new members, Van der Vis said.

‘There’s no takeover, there’s no leveraged buyout, there’s no any kind of such discussion going on,’’ he said.

The almost simultaneous resignations of the CEO and chairman aren’t connected, he said, adding that the head of the board resigned for personal reasons as well.

“The family has given me a clear signal that the way I am currently balancing my life business-wise and family-wise is not acceptable any more,” Van der Vis said. “That’s why I took this decision: to ensure I continue having a family.”

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