Esprit CEO Urges Probe Into Speculations Made About HK Retailer

Esprit Holdings Ltd.’s chief executive officer is urging a probe into speculations the Hong Kong casual-wear retailer has come under investigation by a government body that looks into accounting irregularities.

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,” Esprit CEO Jose Manuel Martinez Gutierrez said at a briefing in Hong Kong on Wednesday after the company announced a full-year loss. "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, who publishes an online newsletter focusing on company disclosures, said on his website the FRC may be probing Esprit after the government announced it had appointed an acting council chairman in the event incumbent Chairman John Poon can’t perform his functions. Poon was Esprit’s deputy chairman and chief financial officer before leaving in July 2008.

Temporary Members

Poon remains chairman of the council, which investigates auditing and reporting irregularities at listed companies, and the appointment of temporary members is to avoid insufficient quorum at the council’s meetings, the FRC said in a statement on Tuesday. Esprit has not spoken to Poon, Thomas Tang, the retailer’s chief financial officer, said on Wednesday.

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

Esprit 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. The company forecast the loss in May.

The company, which took a HK$2.5 billion goodwill impairment charge for its business in China during the fiscal year ending June 2015, still needs to reduce its under-performing stores, Martinez said.

Esprit’s shares fell 0.9 percent to close at HK$6.69 in Hong Kong. The shares have slumped 28 percent this year, compared with the Hang Seng Index’s 9.8 percent decline.