Esprit positive as network shrinks
In this article (5)
Fashion retailer Esprit continues to cull its retail network, but despite reduced sales is confident its turnaround program is on track.
In the third quarter to March 31, the Hong Kong-listed company’s turnover fell 25.5 per cent in Hong Kong dollar terms to HK$4.51 billion, or 12.2 per cent in local currencies where it trades. The Hong Kong figure has been exaggerated by a 17.7 per cent depreciation in the Hong Kong dollar-euro exchange rate.
Retail turnover in Asia Pacific grew by two per cent year-on-year in the third quarter, despite a 2.6 per cent reduction in net sales area, or 20 fewer company-owned stores.
Over the last 12 months Esprit has reduced the number of Asia-Pacific stores supplied by its wholesale division by 40 per cent, or 188 stores.
Wholesale turnover in Asia Pacific thus declined by 8.8 per cent year-on-year in local currency (compared with a 49.3 per cent reduction in the first half of the year). Esprit says this improvement was mainly attributable to the success of its special return agreements with wholesale partners in China which helped to clear considerably aged inventories in the same period last year. That, in turn, has resulted in an improved order intake for the third quarter.
“In the third quarter, the Transformation phase continued to make good progress,” Esprit said in a stock exchange filing.
“Our leaner supply chain maintained its positive impact on our sourcing costs, enabling us to reinvest the savings to further improve the value-for-money of our products. Consequently, the new collections developed under the Vertical Model, which were available in stores since February 2015 have received a more positive response.
“In the third quarter, the Transformation phase continued to make good progress,”
“While this favorable response is encouraging, it is too early to assess the full impact of the new products on our sales given their short time in the market.”
Esprit said to drive sales development and support its sustainable growth, the company will be increasing its marketing efforts and implementing an ambitious omni-channel model to enhance the customer experience across its multiple distribution channels.
“The savings from a leaner supply chain are also driving a year-on-year improvement of our gross profit margin, which is key for the profitability of the company.
“We remain fully confident that our current strategies will enable us to turn around Esprit and to establish a strong foundation for future long term growth.”
Esprit concluded by saying it was encouraged by improved sales of its new collections which went on sale from February this year.
“Retail turnover for the months of February and March 2015 declined year-on-year by 2.9 per cent in local currency – better than our square meters reduction.
“The positive performance in Asia Pacific, where we did not face the same issues from Autumn/Winter 2014 season, was attributable to better availability of merchandise in stores as a result of improved logistics support and more successful tactical promotions in all of our Asian markets for the Chinese New Year holiday.”
Questions & Answers
Q.What is the primary reason for Esprit's reported confidence despite a significant drop in turnover?
What is the primary reason for Esprit's reported confidence despite a significant drop in turnover?
Esprit is confident because its transformation program is making good progress, particularly with a leaner supply chain improving sourcing costs. This allows reinvestment into product value and has led to a positive response to new collections available since February 2015.
Q.How did the Hong Kong dollar's depreciation affect Esprit's reported sales figures?
How did the Hong Kong dollar's depreciation affect Esprit's reported sales figures?
The Hong Kong dollar's 17.7 per cent depreciation against the euro exaggerated the reported turnover fall when stated in Hong Kong dollar terms. This made the 25.5 per cent decline appear worse than the 12.2 per cent fall in local currencies.
Q.What specifically contributed to the improved wholesale turnover decline in Asia Pacific during the third quarter?
What specifically contributed to the improved wholesale turnover decline in Asia Pacific during the third quarter?
The improvement was mainly due to successful special return agreements with wholesale partners in China. These agreements helped to clear considerably aged inventories from the previous year, which subsequently led to an improved order intake for the third quarter.
Q.What strategies will Esprit use to drive sales and support sustainable growth going forward?
What strategies will Esprit use to drive sales and support sustainable growth going forward?
To drive sales and support sustainable growth, Esprit plans to increase its marketing efforts. It will also implement an ambitious omni-channel model, aiming to enhance the customer experience across its various distribution channels.
Reader pulse
Is Esprit's turnaround on track?
15,827 votes so far