Fashion label Esprit confirms heavy loss

Struggling fashion label Esprit is looking to a new CEO and incoming chairman to turn the business around after a horror year.

The Hong Kong-listed company posted a loss of HK$2.554 billion (US$325.5 million) for the year to June 30, pretty much in line with a profit warning issued early last month.

On the plus side, the result included a raft of write-downs, including costs of exiting the Australia and New Zealand markets, cancelling leases for non-performing stores and many other one-offs, leaving the new management team with a clean slate to commence a turnaround.

With widespread store closures, total group revenue fell 11.1 per cent to $15.455 billion, yet overheads were trimmed just 3.3 per cent, widening the business’ operating loss. New executive chairman Dr Raymond Or Ching Fai, said in a stock exchange filing the sales decline was higher than expected with falling customer traffic at both online and offline stores.

He said Esprit had been affected during the year by “the rapidly evolving retail industry, fueled by the continuous growth of e-commerce leading to changes in consumer consumption patterns, and the intensification of price competition driven by both pure digital players and fully vertical retailers”. To be fair, the same factors are affecting every fast-fashion and mid-tier fashion brand, yet few of them are performing as badly as Esprit.

By region, in Germany, Esprit’s largest market accounting for about half of total sales, revenue of $7.79 billion was down 10.9 per cent on last year.

For the rest of Europe, America and the Middle East, sales fell 9.8 per cent and in Asia Pacific, which accounts for just 12.3 per cent of total revenue, sales fell 15.2 per cent. Offline sales in Asia-Pacific fell 17.1 per cent and online sales fell 5.3 per cent.

‘Far from satisfactory’

Or said the company recognises the results are “far from satisfactory” and the situation has challenged both the board and the management team.

“We believe the fundamentals of the strategic initiatives as presented in our last annual report (namely brand rejuvenation, product elevation, channels next generation, markets rightsizing and expansion, and cost reduction) remain sound and are necessary to recharge the potential of the group. However, we concede that the progress to date has yet to reignite sales momentum or translate into a positive financial performance.”

He said that despite the operating loss, the company remained in a healthy financial position, debt-free and with a net cash balance of $4.5 billion, $700,000 less than at the end of the previous year. Some of that cash – $237 million – was used to repurchase about 2.9 per cent of the company’s shares.

New group CEO Anders Kristiansen, who took the helm on June 1, Is leading what Or describes as a “vigorous” update of the strategic plan, scheduled to be finalised within three months.

“In our drive to support growth, we must sharpen the brand identity, create an inspiring omnichannel shopping experience for our customers, and launch stylish and geographically adapted collections to improve sales per square meter productivity. We will continue to leverage on the newly installed dual product engines organisation, whereby the main line focuses on catering to existing customers in our core markets, and the fast-to-market line aims to introduce trendier products for the online and Asia markets, particularly China,” he said.

“These efforts will work in tandem with data generated from extensive consumer research to ensure that our brand, products and channels properly resonate with Esprit’s target customers. We will bring our customers and what Esprit stands for as a brand to the centre of everything we do in order to become more relevant to our customers again and provide them with a strong brand experience.

“While we certainly have a lot of work in front of us, I am convinced that by aligning the execution of our Plan, the better days of Esprit are ahead of us.”

However the company has warned shareholders of a further drop in sales for the current financial year in the “low double-digit percentage” range year on year, mainly due to the continuing rationalisation of its distribution footprint and further decline in customer traffic amid Esprit’s execution of a plan to rebuild store visitor numbers.

This year marks the 50th anniversary of Esprit, and its 25th anniversary of listing on the Hong Kong stock exchange.

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