Esprit makes annual loss but stays upbeat for future
Esprit Holdings has released its results for 2022 and as previously flagged, the company made a loss. In fact, its operating loss was HK$642 million (€75m/£66m/US$82m) compared to a profit of $416 million a year earlier.
That came as revenue fell to $7.06 billion from $8.3 billion in the previous 12 months. Gross profit was also down at $2.87 billion from $4.4 billion. Profit before tax had been $386 million a year earlier but this year those figures were shuffled into a $683 million loss. The net loss was $664 million after a profit of $381 million a year ago.
The company said “the year had been very difficult” with its performance “severely impacted by the unfavourable economic environment, particularly in Germany and the rest of Europe, and the short-term detrimental effects of the group’s restructuring efforts, which is intended to ensure a brighter future”.
With revenue down 15%, it was clear that calling the year “difficult” wasn’t an exaggeration.
The disappointing performance was mainly attributable to “stubbornly high inflation, resulting in both high interest rates as well as expectation for further interest rate hikes”; high energy prices "stemming from Germany’s over-reliance on natural gas from Russia, and the subsequent pressures on household living expenses”; and the continuing conflict between Ukraine and Russia.
That “severely damaged consumer confidence and dampened consumers’ spending appetite”.
For the year, the gross profit margin was 40.7%, which was 7.9% down as the company used markdowns to shift stock linked to the brand relaunch and in reaction to low consumer confidence. Freight costs also had an impact.
The year’s revenue dropped as wholesale, its biggest segment, fell 8% to HK$2.6 billion, “impacted by the sluggish European market and weakened consumer sentiment”.
E-commerce is almost as big for the firm as wholesale and this also declined, by 29% to HK$2.5 billion.
But this was partly offset by the increase in its next biggest segment, the retail channel, as customers shifted back from online purchases during the pandemic to physical retail stores. Retail revenue for the year was broadly flat at HK$1.7 billion (and at constant exchange rates was up 11%).
Licensing meanwhile saw growth of 8% but is the firm’s smallest segment.
Despite the bad news, Esprit said that “notwithstanding the dire business environment for the year, the company is continuously striving to improve and enhance its operations, with a focus on achieving a brighter and more successful future”.
Last year it committed to its “accelerated brand growth by establishing innovation and technology business hubs”, called Esprit Futura. The hubs “combine both research and retail under the Futura concept. The aim is to “allow customers to interact with the brand through in-person apparel, online experience, and other engagement experiences”.
The first opening was in Amsterdam in September (which is a centralised location for denim design and innovation), and it has recently launched its second hub in New York City, housing its creative, brand, and marketing efforts.
Hong Kong remains its HQ, while Ratingen, Germany, continues to manage its omnichannel business in Europe.
In H2 last year, the company also opened pop-up stores in key cities to “drive brand recognition around the world.” Hong Kong and Seoul were launched for Asia, while Los Angeles and New York City were strategically chosen to re-enter the North America market, in addition to launching a US e-commerce site.
And it has been upgrading its retail stores in Europe starting with Germany’s flagship store in Dusseldorf.
Esprit has boosted marketing investment too, as well as spending heavily on tech as part of its modernisation strategy.
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