Esprit's plans to rejuvenate its brand have been described as a "total calamitous failure" by one analyst after the fashion retailer's turnaround efforts yet again failed to gain traction.

The comments came as the Hong Kong listed company yesterday (27 February) swung to a first half loss of HKD465m (US$59.9m) as turnover fell 13.4% to HKD13.55bn.

Esprit embarked on its restructuring programme back in September 2011, with the goal of divesting its North American operations, exiting its retail businesses in Spain, Denmark and Sweden, and improving its consumer perception and sourcing strategy.

But in an analyst email sent today (28 February), Bank of America Merrill Lynch analyst Mark Wallis said: "Make no mistake, in two years time this will not be a US$2.5bn market cap company but a fraction of this.

"Top line is currently shrinking by 20% with same store sales growth at -7%. And management focus is somewhere else, it's on cost cutting and stopping the accelerating cash bleed. The rejuvenation of the brand has been a total calamitous failure."

However the company argued that the fundamentals of its transformation plan are "sound" and that the management team will continue to work on its key initiatives, with a focus on product improvements a priority.

It emphasised that it will "take time" to see the benefits translated into operating results. "While we see improvements in our product, supply chain, store concept and relationships with our business partners, it is important to remember that most initiatives in the transformation plan are still work in progress.

"Additionally, as it is always the case, it will require time to make these improvements visible to our customers and gain them back into our stores," the company said.

Bank of America Merrill Lynch analyst Tony Tseng said he expects Esprit to incur losses for the next 18 months as there are no signs of stabilisation in its performance.

Short-term turnaround plans
Meanwhile, in the shorter term, Esprit said it is working to steady the business by actively reducing costs, "tactically activating top line" and decisively reducing inventory levels.

"In terms of cost reduction, we will be addressing every single line of the group's
cost structure and implementing both structural and operational changes to
achieve a healthier cost base. This will help generate significant operating
leverage when sales recover," the company said.

It expects to save HKD600m during 2012/13 through streamlining its supply chain.

The fashion firm has also consolidated its supplier portfolio, reducing the number of suppliers by 21%, the number of factories used by 29% and reduced the rejection rate by 50%. It has also extended the use of direct sourcing in China, Bangladesh and India, and reduced the proportion of products bought through sourcing agents by 28%.

It added that its central buying function is also benefiting from better use of scale and lower-cost alternatives.

To improve its top line performance and reduce inventory levels, the company said promotions will play a key role, as will its continued marketing efforts which will "concentrate on traffic building and conversion rate improvement".