Esprit H1 FY15 interim sales “far from satisfactory”

Fashion retailer Esprit Holdings Ltd. (0330.HK) said interim sales for the six months ended December 2014 were "far from satisfactory and below expectation". Reasons – seen as excuses by some in the trade – ranged from unusually warm weather in Europe, an depreciating euro to a reduction in store space from the closure of unprofitable stores.

The ailing retailer, listed in Hong Kong, said Wednesday that net profit collapsed to 47 million Hong Kong dollars, nearly halving from the previous year’s same period’s 95 million Hong Kong dollars. Revenue was also badly hit, retreating 13.2 percent on year to 10.72 billion Hong Kong dollars.

On the upside, gross profit margin increased slightly to 50.5 percent from 49.6 percent a year earlier, thanks to savings achieved from a leaner supply chain, as explained the retail group.

Esprit’s CEO calls result “disappointing”

The Chief Executive 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.

It is worth remembering that since Jose Manuel Martinez Gutierrez took the reins of the struggling company, the former Inditex executive has given Esprit some tough love, embarking the company in a thorough restructuring.

In this vein, Hong Kong-based Esprit had warned that its restructuring efforts would make for volatile results, however, the retailer stressed that the poor results for the first six months of their current fiscal year have nothing to do with that same restructuring.

However, potential further weakening in the euro and a slowdown at its outlets in China do actually add uncertainty for the second half of the year. In this sense, the company and analysts alike have pointed out that approximately 78 percent of Esprit's sales are in euros.

Main pain-points for Esprit were China, where sales plunged by 22 percent, and Germany, its largest market, where they declined 16 percent. Return agreements with wholesalers in China for old inventory had also hurt sales, it added.

Finally, Esprit also noted 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.

Esprit’s H1 revenue falls short of estimates

Indeed, Esprit’s first-half profit missed analyst estimates. Net profit came in at 47 million Hong Kong dollars in the six months to December, 31, within the range previously provided by the company but below a StarMine Smart Estimate of 51.79 million Hong Kong dollars from two analysts, reported Reuters.

Analysts at the Deutsche Bank kept their ‘hold’ recommendation but cut their target price on the shares to 9.3 dollars a piece, while their peers at HSBC downgraded the stock in the view of the poor performance to ‘neutral’.

In Hong Kong, Esprit Holdings Ltd. slid 2.9 percent Thursday, adding to the 1 percent the stock lost on Wednesday before the announcement.

On a separate note, Esprit proposed an interim dividend of 0.015 Hong Kong dollars per share, a decline from 0.03 Hong Kong dollars the previous year.