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Esprit Says Second Half Uncertain After Returning to Profit

Esprit Holdings Ltd. said it’s uncertain about the company’s second-half performance after rebounding from a year-earlier loss to post a profit in the fiscal first half. Shares dropped the most in five months.

The company posted net income of HK$95 million ($12 million) for the six months ended Dec. 31 after cutting costs, it said in a statement to Hong Kong’s stock exchange today. The result compared with a HK$465 million loss a year earlier. Revenue fell 5.5 percent to HK$12.8 billion.

Esprit’s performance in the current fiscal half remains uncertain as the operating environment is “very challenging,” it said. The company expects a further decline in sales for the full year because of store closures.

“There’s no end to cost reduction measures,” Chief Executive Officer Jose Manuel Martinez Gutierrez said at a briefing today. The company saved more than HK$1 billion in the first half, according to today’s statement.

The Hong Kong-based clothing retailer has cut product lines and closed some outlets as it seeks to turn around after posting a HK$4.39 billion annual loss, its first since listing in 1993, for the 12 months ended last June. Esprit’s sales slumped last year as economies weakened in Europe, which made up 80 percent of group sales, and as competition from Hennes & Mauritz AB and Inditex SA’s Zara intensified.

Europe Sales

Esprit pared gains after the earnings to close up 0.7 percent at HK$14.68 in Hong Kong trading.

Sales in Europe fell 5 percent in local currency and slumped 21 percent in Asia. The biggest decline was in China, Esprit’s third-largest market.

The company expects a single-digit decline in sales for the second half in Europe, Martinez said.

Consumer confidence in Europe unexpectedly declined in February, the European Commission said Feb. 20, adding to signs the currency bloc’s recovery may be cooling. In China, economic expansion will slide to 7.4 percent in 2014 from last year’s 7.7 percent, according to a Bloomberg survey.

The company will close some loss-making own stores in France because of the country’s “difficult” economic situation and as part of its cost-cutting plan, the company said Feb. 12. More than 100 employees will be affected by the store closures and internal restructuring, it said.

Esprit has booked an additional HK$80 million provision for store closures, according to today’s statement.

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