Esprit HK suffers a huge loss

Distressed fashion chain Esprit has warned of a massive HK$2.2 billion (US$280 million) loss based on write-downs, exit costs – and a continuation of falling sales.

The Hong Kong-listed company filed a profit warning with the Hong Kong Stock Exchange in which it said, based on the first 11 months figures for the year – it expected a loss before interest and taxes of between $2.170 billion and $2.270 billion for the full financial year to June 30. Last year, Esprit lost $102 million.

A just over half the Esprit loss results from non-cash items and one-off costs due to store closures, the company says it expects to post an operating loss as high as $950 million due to plummeting sales. It reported a “decline of customer traffic” to its brick-and-mortar stores, higher than it projected.

The one-off costs listed were:

• A full impairment and write-down of the value of the China business, of HK$ 794 million before taxation.

• The divestment of its stores in Australia and New Zealand, which will cost between $180 million and $200 million in provision for store closures and impairments.

• • Additional provisions and impairments due to the weaker than expected sales performance of directly managed retail stores for the year, including provisions for store closures and onerous leases, ($175 million to $185 million) and impairment of fixed assets of directly managed retail stores, ($11 million to $16 million).

• A write-down in the value of inventory of between $80 million and $90 million arising from a change in the way it estimates the value of aged inventory.

• Impairment of between $30 million and $35 million associated with obsolete SAP applications.

The company said it would present final results for the year in September.

Esprit has been struggling to achieve profit for the several years. In late April it warned shareholders its third-quarter performance was “well below expectation” and announced it would not renew the lease on its Causeway Bay flagship store.

In March, it announced Jose Manuel Martínez Gutierrez would step down as group CEO and executive director of the company on June 1. Anders Kristiansen has since officially taken over the role.