Esprit Slumps After Warning of Annual Loss on Weak China Sales

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Esprit Holdings Ltd., which sells casual knitwear and jeans in Europe and Asia, fell to the lowest since 2001 after forecasting a “substantial” loss for the year to June amid slow sales and poor performance in China.

Esprit’s shares slumped 3.6 percent to HK$6.74 as of 9:50 a.m. in Hong Kong, extending a four-day losing streak. The benchmark Hang Seng Index was little changed.

The Hong Kong-based retailer may record a non-cash impairment of goodwill of as much as HK$2.7 billion ($348 million) as it faces a challenging operating environment and softer economic growth in China, it said in a statement on Monday. Esprit also expects an operating loss from weaker-than-expected sales growth.

Esprit’s profitability in the first six months of 2015 “will be impacted by a very weak January due to heavy discounting, weak euro, and unfavorable seasonality,” UBS AG analyst Erica Poon Werkun wrote in a note after the forecast, adding she remained positive on Esprit’s strategic direction and maintained a buy recommendation.

Esprit’s shares have slumped by nearly half since peaking on Sept. 4, as third-quarter sales declined 25 percent and analysts from HSBC Holdings Plc to Goldman Sachs Group Inc. downgraded the stock or reduced share-price forecasts. The second-half outlook remains uncertain as revenue may continue to drop amid concerns about shoppers’ reception to its spring and summer products, Barclays Plc said in a note in February.

The company derived 84 percent of its year to June 2014 revenue from Europe, mainly in Germany and the Benelux countries, while China was its biggest market in the Asia Pacific contributing 7.5 percent of sales.

Esprit returned to profit last year after posting its first annual loss in 2013. Gross profit margin is expected to “increase slightly” this fiscal year, it said in September.