Esprit Shares Fall After Analysts See Another Year of Losses

Esprit Holdings Ltd. declined after analysts at Barclays Plc and Bank of America Merrill Lynch predicted another year of losses for the casual-wear retailer.

“Esprit’s performance was resilient in a tough operating environment but there was virtually no metric where any improvement was recorded on the revenue line,” Barclays analysts led by Vineet Sharma wrote in a report. “We would not recommend accumulating at this time, given that the coming 12 months will likely see recurring losses from the business.”

Esprit fell 2.2 percent to HK$6.54 by the close of Hong Kong trading, the lowest in more than a week. The shares plunged on Monday after a shareholder activist said Esprit may be the subject of a government investigation, prompting its chief executive officer to urge a probe into the speculation.

The retailer posted a net loss of HK$3.7 billion ($477 million) for the year ending June 2015, compared with net income of HK$210 million a year earlier, hurt by poor sales in China and Germany as well as a weaker euro. That compared with the average estimate of a HK$3.16 billion net loss from three analysts compiled by Bloomberg. Esprit forecast a loss in May.

Still Challenging

The company’s sales have improved since February and this has continued into the current fiscal year, Esprit CEO Jose Manuel Martinez Gutierrez said at a briefing in Hong Kong on Wednesday, adding it still needs to reduce under-performing stores.

Esprit’s "overall financial outlook remains challenging" even as it is seeing some green shoots, Bank of America Merrill Lynch analysts led by Raymond Ching analyst wrote in a note, adding Esprit is expected to remain loss-making in the current fiscal year. Esprit took a HK$2.5 billion goodwill impairment charge for its business in China during the year ended June 2015.

Esprit shares plunged Monday after shareholder activist David Webb wrote on his website that the company may be the subject of an investigation by Hong Kong’s Financial Reporting Council. The retailer said that while it’s aware of Webb’s article, it hasn’t been contacted by the council.

"I really hope that at some point they decide to investigate them,” Martinez said. "I found it extremely damaging that someone can speculate about something like that,” he said, adding that Esprit wouldn’t be aware of any investigations by the council as they are kept confidential.

Webb said in an e-mail Wednesday that he stands by his report.

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