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Esprit continues to struggle as first half revenues slide 14.4 percent

By Prachi Singh

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Business

For the six months to December 31, 2018, Esprit Holdings Limited reported revenue of 6,766 million Hong Kong dollars (861.9 million dollars), representing a decline of 14.4 percent in local currency terms. The decline in Hong Kong dollar terms, the company said, was slightly higher at 15.8 percent due to the weakness of the euro against the Hong Kong dollar during the period under review.

Commenting on the first half trading performance at the press conference in Hong Kong today, Anders Kristiansen, Group Chief Executive Officer of Esprit, said: “We have a great plan and are making the bold changes needed to restore Esprit to sustainable growth and profitability. The teams are working intensively on all initiatives but the brand re-positioning and changes in product will take time to become visible and attract customers back.”

Review of Esprit’s first half performance

The decline in revenue was, the company added, result of a combination of the impact of the group’s strategic rationalization of its distribution footprint leading to a controlled space reduction of 11 percent and reduced customer traffic across the distribution channels due to the weakness in brand identity and product appeal.

The group recorded a gross profit of 3,471 million Hong Kong dollars (442 million dollars), resulting in a gross profit margin of 51.3 percent compared to 52.9 percent last year. Esprit said the year-on-year decrease of 1.6 percent points in LCY was mainly due to investment in improving product quality and higher level of discount. In terms of profitability, improvements in regular OPEX were not sufficient to offset the decline in revenue. As a result, LBIT of underlying operations recorded a loss of 332 million Hong Kong dollars (42.3 million dollars) as compared with 136 million Hong Kong dollars (17.3 million dollars) in the same period last year.

“It is important to highlight that all of the abovementioned one-off restructuring costs are necessary to reduce losses and build a healthier platform for future growth,” added Thomas Tang, Group Chief Financial Officer of Esprit.

Taking into account net interest income of 13 million Hong Kong dollars and net taxation expenses of 36 million Hong Kong dollars, net loss was 1,773 million Hong Kong dollars (225.8 million dollars) for 1H FY18/19. As the group recorded a loss for 1H FY18/19, the board of directors has decided not to declare an interim dividend for the six months ended December 31, 2018.

Esprit to restructure with focus improving sales and profitability

Moving forward, to achieve a positive business performance, Esprit said, the group is building a new model for the future. This includes sharpening the brand identity of Esprit and putting the customer at the centre of everything the group does; and improving the product offering and how it relates to the Esprit consumer and brand positioning. At the same time, the group is also building a more efficient organization and restructuring the cost base, which includes reducing complexity and improving accountability throughout the organization by becoming a leaner and more responsive organization; and eliminating loss-making areas of the business in order to build a stronger foundation for the future.

“Looking ahead, we expect the next two financial years to be a period of transition. We are reducing complexity and right sizing the organization. We expect to see further decline in revenue in the next two years due to closure of loss-making stores, before reviving growth driven by product and brand initiatives,” said Kristiansen.

Overall, the group expects a compound annual growth rate in revenue of a mid-to-high single-digit percentage in LCY between FY19/20 and FY23/24. In terms of underlying operating profit (EBIT), the group expects to achieve breakeven in two to three years’ time. Thereafter, underlying operating profit margin (EBIT margin) is expected to expand gradually to mid-single digit percentages by FY22/23 in LCY.

“While the group is confident of its strategic direction aimed at restoring its long-term sustainable growth and profitability, the ambitious nature of the work ahead, combined with the challenging and demanding market environment, may present uncertainty to its short-term performance,” added Raymond Or, Executive Chairman of Esprit.

Picture:Facebook/Esprit

Esprit