Half-year net income declines to HK$2.14b, lags market estimates

Esprit Holdings Ltd, Asia's third-biggest garment retailer by market value, posted a 21 percent fall in its first-half profit due to currency losses and weak sales in Europe.

Net income for the six months ended Dec 31 declined to HK$2.14 billion or HK$1.66 a share, compared with HK$2.7 billion or HK$2.11 per share a year earlier. It also fell short of the HK$2.3 billion median estimate surveyed by Bloomberg as well as lagging the HK$2.16 billion polled by Reuters.

Total sales amounted to HK$17.69 billion, down 4.2 percent from HK$18.48 billion during the same period in 2009. Esprit declared an interim dividend of HK$1 per share, up from HK$0.74 a share a year earlier.

Shares of Esprit closed at HK$38.7 in Hong Kong trading Thursday, down HK$0.15 or 0.39 percent compared with the 1.97 percent decline in the city's benchmark Hang Seng Index. The stock jumped as much as 5.1 percent to HK$40.85, the biggest intraday gain since July 9.

The Europe-focused fashion retailer, which generated almost 80 percent of its turnover in the region, said sales fell 10.8 percent to HK$14 billion in the first half in Europe, while total wholesale revenue including transactions made at department-store counters slid 12.8 percent to HK$7.62 billion.

Sales were sluggish in Europe and North American in December, impacted further by bad weather conditions, said Esprit Chief Executive Officer Ronald Van der Vis, who added that excluding the December sales, sales growth for the first half was nearly "flat" compared with a year earlier.

"The loss is also largely due to currency depreciation as the (US) dollar has strengthened against the euro," Van der Vis told a media briefing in Hong Kong Thursday. The dollar rose 7.1 percent against the euro last year, according to Bloomberg.

Asia-Pacific sales were the only bright spot in the group's first half operating performance, as the region's share in the group turnover increased to 17 percent in the first half from 12 percent previously.

Esprit's sales in the Asia-Pacific region surged 39 percent to HK$3 billion, boosted by revenue from the mainland after the clothier bought out its joint-venture partner.

The company reiterated its strategy to more aggressively grow its business in China after the dismal performance in the European market.

"Our focus now, is China, China, and China," Van der Vis told reporters in Hong Kong after the company's media briefing for its first-half results.

The apparel retailer said its five-year retail strategy for China was on track, as its retailing outlets have increased 7.6 percent to 1,002 from the previous 931, expanding its footprint to 183 mainland cities from 169 a year earlier.

"It is still challenging for Esprit even if it now focuses on the China market," said Louis Wong, director with Phillip Securities. "Many international garment retailers have shifted their focus to Asia-Pacific, particularly China. When the battlefront has been moved to the same place, it is the execution and strategy that matters for success."

Esprit competes with Hennes & Mauritz AB and Inditex SA in the global apparel retail market, as well as in China. Van der Vis said the group is not planning any price war campaign but will "maintain the price and inject more value into the products."

The group plans to set aside HK$1.3 billion for capital expenditure in the second half of the fiscal year to June 30, among which HK$600 million will go to opening new stores and refurbishing existing stores. Esprit plans to open 70 new directly-managed stores in the second half.

The company will also switch more sourcing to Bangladesh from southern China to save costs, CEO Ronald Van der Vis told the press briefing.

"We have identified the opportunities to diversify our portfolio in different countries. One of the countries that we have identified is Bangladesh," he said. "We will open selectively new sourcing offices in future in markets where we believe there are opportunities for us."

The company also announced that Heinz Jurgen Krogner-Kornalik has resigned as non-executive chairman and director, effective from Feb 11, for the "pursuit of other personal commitments". Hans-Joachim Korber, an independent non-executive director who joined the company in mid-2008, will succeed him.

China Daily

(HK Edition 02/11/2011 page2)