HONG KONG: Esprit to exit North America as profits dive
Esprit plans to close 93 loss-making stores in North America
Esprit has revealed plans to shutter its US operations and close its retail businesses in a number of other countries on the back of its continuing poor results.
The company today (15 September) said that it will divest its North America operations, exit from its retail operations in Spain, Denmark and Sweden, and close down certain under performing stores worldwide.
Esprit plans to focus its energies on developing higher growth and profitable markets and "avoid incurring further losses from non performing markets and stores".
The company said the North American business has been making losses, "despite our continued efforts and investments" since it acquired the Esprit trademark rights in the US and the Caribbean Islands. It has also attempted to unify the brand globally since buying the remaining 37% interest in Esprit International.
The move will involve closing some 93 directly managed North American stores, which reported an EBIT loss of HKD308m over the financial year before closure costs.
It also plans to close a further 80 stores, of which 65 are in Europe and 15 are in the Asia Pacific region. These stores incurred an EBIT loss of HKD222m before store closure costs.
The announcements came as the company reported a sharp drop in net income, down to HKD79m for the year ended 30 June, from HKD5.74bn in the previous year.
Sales were largely flat on the previous year, up 0.5% to HKD33.76bn, against HKD33.73bn the previous year.
The company said retail turnover increased 6.2% over the year, which was "more than enough" to compensate for the 6% decline in wholesale turnover, which fell to HKD14.5bn. Second-half revenue growth accelerated, up 5.3% over the previous year.
Esprit warned the pace of recovery was "slower than expected", especially in Europe, as consumer spending and sentiment was "negatively impacted by rising inflation and austerity measures".
Its largest market, Germany, recorded a 1.1% sales decline, while its second-largest market, China, reported 4.4% turnover growth, driven by a 9.1% increase in wholesale revenues.
As part of plans to return to a "high level of sustainable profitability" the company plans to consolidate all buying functions within one sourcing organisation. "New sourcing offices will be opened to accelerate our sourcing strategy. In doing so Esprit targets annual savings of around HKD1bn by FY14/15."
Esprit's stock price was down 17.6% at the market's close today to HK$15 a share.
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