Likely loss in first half, Esprit Holdings to be alert
In this article (5)
Fashion group Esprit Holdings has issued a warning it expects a net loss for its first half, to the end of December.
Based on a preliminary review of its unaudited consolidated management accounts, the net loss is expected to be in the range of about HK$950 million (US$121.5 million) to $980 million, compared to a net profit of $61 million in the same period a year earlier.
Esprit attributes the anticipated loss to the combination of three major factors:
1. Full impairment of the remaining balance of the goodwill and customer relationships in association with the group’s China business, which has had a “significant decline” in recent years, resulting in a negative impact of about $795 million before taxation.
2. A larger-than-expected drop in group revenue in the second quarter after expecting a modest decline as a result of strategic rationalisation of its distribution footprint. The decline was exacerbated by lower sales at its brick-and-mortar stores. As a result, loss before interest and taxation (LBIT) and before the China Impairment is estimated to be in the range of $150 million to $180 million for the first half, compared to LBIT of $13 million in the same period a year earlier. While gross profit margin had slightly increased and running expenses had further reduced in the first half, it was not enough to outweigh the negative impact of the revenue decline.
3. Net taxation expense of about $5 million in the first half in contrast to a net taxation credit of $74 million in the same period last year.
Esprit’s company secretary, Florence Ng Wai Yin, says the board wants to reassure shareholders that the group is in the midst of fine tuning its strategic measures to establish a solid platform for long-term profitable growth. “The retail environment continues to be challenging, and because of the seasonality of the business, the performance in the second half of a financial year is usually not as good as the first half. This means the financial performance of the group in the second half remains uncertain.”
Esprit expects to release its interim results at the end of next month.
Questions & Answers
Q.What is the expected net loss for Esprit Holdings in the first half?
What is the expected net loss for Esprit Holdings in the first half?
Esprit expects a net loss ranging from approximately HK$950 million (US$121.5 million) to HK$980 million for the first half, ending in December. This compares to a net profit of HK$61 million in the same period last year.
Q.What are the primary reasons for the anticipated net loss?
What are the primary reasons for the anticipated net loss?
The loss is attributed to a full impairment of goodwill and customer relationships in its China business, a larger-than-expected drop in group revenue, and a net taxation expense. These factors combined significantly impacted the financial results.
Q.How did the revenue decline specifically affect the company's performance?
How did the revenue decline specifically affect the company's performance?
The revenue decline, exacerbated by lower sales in brick-and-mortar stores, led to an estimated loss before interest and taxation (LBIT) of HK$150 million to HK$180 million. This contrasts with an LBIT of HK$13 million in the previous year.
Q.What is the outlook for Esprit's financial performance in the second half?
What is the outlook for Esprit's financial performance in the second half?
The performance in the second half typically is not as strong as the first half due to business seasonality. The company secretary indicated the financial performance of the group in the second half remains uncertain.
Reader pulse
Will Esprit recover in H2?
19,219 votes so far