Esprit manages to turn profitable in FY14

REPORT_ Esprit, in its full year financial results for the 12 months ended June 30, 2014 managed to stabilize business performance in order to establish a healthy financial and operational platform for the future, along with the preparation for the organization to carry out structural changes

which form the basis of the transformation required to regain the Group’s market competitiveness. The strategy assisted the Group to return to profitability in FY13/14. Gross profit margin improved slightly year-on-year to 50.2 percent compared to 49.6 percent in FY12/13, mainly due to improved inventory management and a larger share of retail turnover to Group turnover.

Commenting on the results, Jose Manuel Martínez Gutiérrez, the Group Chief Executive Officer of Esprit, said, “We are pleased with the encouraging results and good progress achieved over the past twelve months, and believe that we have turned a corner in our road to recovery. We stabilized the business and returned to profitability, and in so doing, have established a solid foundation from which to carry out our transformation, which is moving forward as planned.”

Group turnover amounted to 24,227 million Hong Kong dollars (3,125.5 million dollars), representing a decline of below 6.5 percent year-on-year in Hong Kong dollar terms and below 9.9 percent in local currency), which was in line with a belpow 10.7 percent reduction in retail and wholesale space. Esprit’s sales performance in Europe, its largest market, continued to stabilize. Excluding store closures and stores with onerous leases, the region’s turnover dropped slightly by below 1.8 percent in Hong Kong dollar terms and by below 6.3 percent in local currency, largely in line with the corresponding below 7.9 percent reduction in net sales area.

In contrast, Esprit’s performance in Asia Pacific and in China in particular, was weighed down by the Group’s efforts to rationalize unprofitable retail space and reduce aged inventories in the wholesale channel. The effective reduction of the Group’s top line has been compensated by the very ambitious cost reduction plan that has driven down its operating expenses by below 30.6 percent in Hong Kong dollar terms and by below 32.9 percent in local currency.

After twelve months of team effort and intense training on new processes, the Group reached an important milestone in July 2014 in activating its new vertically integrated business model for both its retail and wholesale channels. The new model was implemented as per the Group’s expectations.

Management priorities for the new financial year will focus on finalizing the implementation of the vertical model and overhauling the Group’s new operations. While this implies a challenging year for the Company, it is the crucial step to regain competitiveness and sales performance. Once the top line recovers, the Group will fuel growth through both its omni-channel model and more intensive marketing efforts, as well as through organic expansion in markets where the Esprit brand is already relevant, but where distribution is still limited.

Opined Raymond Or, Chairman of Esprit, “The Board is pleased to see the good progress made this year in the Group’s business. With the stabilization of our business achieved, Esprit will continue its process of transformation in the coming financial year under the new, vertically integrated business model. While the final stages of the Group’s recovery will clearly take time, we are confident of Esprit’s immense potential and believe that we have the appropriate elements in place to move closer to our objective of building a stronger foundation for the future.”