Another huge loss for retailer Esprit

More writedowns and restructuring costs have seen fashion retailer Esprit post another full-year loss, but the company is adamant its recovery plan is beginning to show results.

With fewer stores, sales were down in all of its markets, but executive chairman Dr Raymond Or told shareholders in results filed overnight that the second half-year showed a significantly reduced operating loss.

Group sales for the year to June 30 were HK$12.9 billion (US$1.65 billion), down from $15.5 billion last year. The group recorded a loss attributable to shareholders of $2.14 billion, an improvement on last year’s $2.55 billion.

Or said the group’s underlying operations (before exceptional items, interest and taxation; its LBIT) improved from $909 million last year to $587 million this year.

Esprit has launched a multi-year strategic plan to turn around its losses by improving the product, right-sizing its store network and restructure behind-the-scenes operations. Or said that plan only started to take effect in the second half of the year, when the LBIT was down from $773 million to $255 million.

“This improvement in performance was primarily the result of our proactive and decisive cost control initiatives highlighted by actions to eliminate loss-making stores as well as bold measures to right-size the organization and our global distribution network, including the downsizing of corporate offices so as to achieve savings across all key cost lines. Taken as a whole, these initiatives resulted in savings in regular operating expenses of $1.742 million or 16.6 percent in local currency terms; thus we are well on track to achieve the targeted annualized expenses savings of $2 billion over two years from the 2017/18 level.

“These savings have significantly reduced our cost base and will provide a leaner platform that we can leverage in the future as we embark on top-line growth,” said Or.

“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 … Esprit.”

He said retailer Esprit now has a clear strategic plan and the right team in place to return Esprit to sustainable growth and profitability.

The bottom line was heavily impacted by one-off restructuring costs which accounted for the bulk of $1.493 billion in exceptional expenses for the year.

After several years of multi-billion dollar losses, one of the reasons Esprit has survived when other fashion retailers might have collapsed is that the group is debt free. At the end of June it still had a $3.282 billion cash balance.