Esprit hails progress with strategy plan but losses remain big

By

Sandra Halliday

Published
Sep 19, 2019

Esprit’s problems are continuing with the Hong Kong and Germany-based fashion firm reporting another set of weak results and saying that the protests in Hong Kong have dented foot traffic to its stores by over 40%.

At a press conference for the firm’s results, CEO Anders Kristiansen said the situation there is “abnormal”.

Aside from extreme events like these, though, were there any sign of progress at the firm that has been struggling with its turnaround for quite a few years now? Well, yes, but it wasn’t exactly a great leap forward, although the firm’s shares did rise on Thursday so investors seem to be seeing some light at the end of the tunnel. 

For the year to June 30, its results were better than expected, but a net loss of HK$2.14bn (£219m/€248m/US$274m), while 16% lower than a year earlier, was still a big loss. And while revenue was higher than analysts had predicted, with a year-on-year drop to HK$12.9bn, from HK$15.4bn it wasn’t exactly time to break out the party poppers.

The big question is how much of that sales and profits decline was due to the Hong Kong protests? Well, only 9.5% of the company’s revenue comes from Asia so it clearly has ongoing issues in its other operations too.

Germany accounts for just over half of its revenue and its retail store sales there declined 12.8% in local currency, but that was good given that sales space declined by 14.8%. 

The rest of Europe showed a similar pattern with retail sales down 7.6% but space reductions of 8.8%. Asia Pacific retail sales fell 34% with selling space down 35.5%. This big space cut was mainly due to it exiting the ANZ market.

As for e-shop sales, there was some good news. E-tail accounts for almost 29% of total sales and Europe for over 96% of that 29%. Global e-shop sales may have fallen 6.6% but in local currencies, Europe e-shop rose 3.9% in Q4.

Executive chairman Dr Raymond Or Ching Fai was upbeat and said that “the last financial year marked a year of significant changes for the group and will be remembered as being pivotal towards the turnaround and restoration of the longer-term profitability of Esprit.”

And he added that “we now have a clear strategy plan and the right team in place to return Esprit to sustainable growth and profitability. The concerted efforts of the team in the past year have laid a solid foundation of our future business model and have resulted in early signs of improvement in our business performance.”

That has included “right-sizing” the organisation building a new business model “to sharpen our brand, improve our products and enhance our customer and brand experience to regain the confidence of consumers and our competitiveness in the market. We are gratified to see that these changes are already yielding results contributing to improvements in the operational metrics as they have laid the foundation for our road to recovery.”

We’ll just have to wait and see how it all pans out.