HONG KONG: Esprit seeks HK$5.2bn for turnaround
Hong Kong-based clothing brand Esprit is looking to raise up to HK$5.2bn (US$670m) through a rights issue to fund the execution of its transformation plan.
Esprit will allow its existing shareholders buy one share at HK8 for every two they already own. It will issue no less than 646m shares.
The money will be used to rebuild and revitalise the Esprit brand, overhaul the product engine, refurbish existing stores and points of sale in line with the company's new brand strategy, develop its supply chain and fuel future expansion plans.
The net proceeds will also be used to provide working capital for the company and its subsidiaries. HSBC and UBS are acting as the joint underwriters.
Chairman Raymond Or said: "The directors have decided to undertake the rights issue to give the company financial flexibility and to provide funding for the execution of the transformation plan of the company. In making this decision, the directors have considered the current challenging operating environment and economic uncertainties."
The news comes as the retailer saw its turnover decline 22.8% to HK$6.6bn during the three months ended 30 September. Turnover fell 14.4% in local currency.
Excluding store closure programmes and North America, revenue slipped 19.7% and 10.9% in local currency, the retailer revealed in its trading update yesterday (22 October).
Comparable store sales edged down 0.2%, compared to an 8.5% fall last year, helped by the company's improved performance in Europe.
Commenting on the results, Bank of America Merrill Lynch analyst Tony Tseng said: "We remain cautious on Esprit given the 50% EPS dilution from the rights shares issuance, and potential risks on wholesale inventory buyback and operating losses given plunging wholesale business with a much higher margin.
"Meanwhile, this issue of rights shares may suggest a deteriorating cashflow and lengthening of working capital cycle, in our view."
Last September, Esprit began a turnaround programme, which saw the retailer exit North America, exit its retail businesses in Spain, Denmark and Sweden, and close under-performing stores.
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