Feb 25, 2015
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Esprit H1 profit halves, CEO says restructuring not to blame

Feb 25, 2015

HONG KONG, China - Clothing retailer Esprit Holdings posted a halving of first-half profit that also missed analyst estimates, hit by unfavourable currency rates and as sales slid on the closure of underperforming stores and unseasonably warm weather in Europe.

Under Chief Executive Jose Manuel Martinez Gutierrez, the Europe-focused company has launched a dramatic restructuring, seeking to learn from the business model of his former employer Inditex SA.

Esprit store in DüsseldorfEsprit - Esprit

Martinez said that while the first half had obviously been disappointing, this did not mean that the company was on the wrong track with its ambitious program of store closures, price adjustments, new return policies and technology and distribution upgrades.

"We know that most of the factors affecting the bad performance in these first six months have nothing to do with the things we are introducing, they have nothing to do with the transformation plan itself," he told an earnings briefing.

Net profit came in at HK$47 million ($6 million) in the six months ended Dec. 31, within a range flagged by the company earlier but below a StarMine SmartEstimate of HK$51.79 million from two analysts.

Hong Kong-based Esprit had warned that its restructuring efforts would make for volatile results.

Potential further weakening in the euro and a slowdown at its outlets in China, the group's biggest revenue contributor in Asia Pacific, also look likely to cloud its second-half outlook.

Approximately 78 percent of Esprit's sales are in euros.

First-half turnover fell 13.2 percent to HK$10.7 billion, with the pain felt worst in China where sales dropped 22 percent drop and in Germany, its largest market, where they declined 16 percent.

The fast fashion retailer became the latest company to highlight the impact of pro-democracy protests in Hong Kong on its bottom line, saying the demonstrations forced it to shorten trading hours in some affected areas last year.

Return agreements with wholesalers in China for old inventory had also hurt sales, it added.

Gross profit margin increased slightly to stand at 50.5 percent from 49.6 percent a year earlier, thanks to savings achieved from a leaner supply chain.
Shares in Esprit closed down 1 percent on Wednesday, lagging a flat overall market.

$1 HK = $0.13 US / £0.03

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