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February 28, 2018updated 12 Apr 2021 2:16pm

Esprit prioritises sales as H1 comes in below expectations

Esprit CEO Jose Manuel Martínez said improving sales across all channels is a "fundamental" goal as the Hong Kong-based fashion brand swung to a loss in the first half with weaker than expected sales at retail stores and a goodwill impairment in China taking a toll.

By Beth Wright

Esprit CEO Jose Manuel Martínez said improving sales across all channels is a “fundamental” goal as the Hong Kong-based fashion brand swung to a loss in the first half with weaker than expected sales at retail stores and a goodwill impairment in China taking a toll.

For the six months ended 31 December, the fashion brand reported a net loss of HK$954m (US$121.9m), compared to net profit of HK$61m a year earlier.

Group CFO Thomas Tang says the majority of the net loss (HK$794m) is related to the impairment of the firm’s China Goodwill and Customer Relationships and has no impact on its operational performance and cash balance.

Meanwhile, gross profit margin increased to 52.9%, up 0.4% points from last year, mainly as a result of continued improvement of supply chain efficiency.

Group sales fell 2.3% to HK$8.04bn, compared to HK$8.32bn last year. Esprit said that while the decline was expected, due to the strategic rationalisation of its distribution footprint, a drop in footfall at retail stores was also to blame.

“Interim results of the group are below our expectation, mainly due to weaker than expected sales performance of our brick and mortar retail stores in the second quarter of the financial year, where we observed decreased customers traffic,” said Martínez. “However, management is clear that further rationalisation of our controlled space must continue and it must be compensated by increasing sales performance both in the remaining brick and mortar stores and online business. Thus improving sales productivity across all channels is our fundamental goal.”

Moving forward, Esprit says it will continue to work along the five strategic initiatives presented in the last annual report, namely brand rejuvenation, product elevation, channels next generation, markets rightsizing, and cost reduction.

In order to maximise their impact, management is developing each initiative with specific solutions for two different areas of the business: the core business and the new businesses.

For the core business (current product offering serving core customers in Europe), the main goals are to stabilise sales performance by shaping product collections strictly to the demands of the current core consumers group and to maximise profitability by rapidly improving the efficiency of existing operations.

Regarding new businesses, the goal is to capture opportunities in areas of high growth potential by developing new product lines, under a fully vertical model, totally devoted to the firm’s online channels and to a new generation of consumers, especially in China.

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