More challenging situation for Esprit Holdings

Trading conditions have continued to be challenging for clothing company Esprit Holdings.

With the industry changing rapidly, the company says it has had fewer customers in its brick-and-mortar retail stores as well as increased competition in the e-commerce channel. As a result, the group’s first-half performance to the end of December was below management expectations.

Esprit says it has experienced a significant decline in its China business in recent years.

While gross profit margin improved by 0.4 points, the group had a net loss of HK$954 million (US$121.8 million) for the half-year, following a net profit of $61 million for the same period a year earlier.

First-half revenue was $8 billion, a year-on-year decline of 9.6 per cent.

Esprit says rationalising its distribution footprint by closing unprofitable stores and non-performing wholesale spaces continues to be paramount. During the six months to the end of December, the group reduced total controlled space by 21,766sqm. This, with the 24,122sqm reduction in the previous six months, added up to a year-on-year reduction of 7.4 per cent.

Revenue for the first quarter fell 7.4 per cent in local currency, while in the second quarter the decrease was 11.7 per cent, larger than expected primarily because of weak sales in its brick-and-mortar stores.

Representing 12 per cent of total group revenue, Asia Pacific (mainly China, Australia and New Zealand, Singapore, Hong Kong, Taiwan, Malaysia and Macau) saw revenue fall 17 per cent to $966 million.

In terms of distribution channels, retail contributed 82.4 per cent of the region’s revenue with the e-shop contributing 11 per cent.

Asia Pacific represented 9.9 per cent of total group revenue, down by 18.4 per cent year on year, and down 20.3 per cent in the first quarter and 17.1 per cent in the second quarter.

There was a 10.2 per cent reduction in net sales area under the company’s restructure of its store network. “Sales performance was visibly dragged by the underperformance of concession counters in department stores in China.”

E-commerce accounted for 26 per cent of total group revenue, up from 24 per cent. The channel generated $2 billion in revenue, a 2.5 per cent dip.

This is Esprit’s 50th-anniversary year, and it has been listed for half that time.