Clothing chain Esprit is sending out a profit warning after disappointing results in the third quarter. A new drop in sales and provisions for the closing of loss making shops will burden the fashion company based in Hong Kong with a substantial loss for the current financial year.
Sales keep declining
The Hong Kong-based company tried looking at the bright side however, stating that for the quarter that ended on 31 March the drop of sales on a comparable base had shrunk to -1.5% (compared to -3.6% during the first half-year 2012-2013). The drop of sales in wholesale is also slowing down: -9.6% in the third quarter, compared to -13.7% in the first semester, mainly thanks to supportive measures.
That positive look can however not hide that Esprit is seriously ill: after nine months sales come to 20.27 billion Hong Kong dollar (1.98 billion euro), compared to almost 24 billion dollar (almost 2.35 billion euro) for the same period a year earlier: a drop of 15.5%.
Especially in Europe Esprit has its difficulties: sales declined by 8.7% in retail and no less than 17% in wholesale during the past nine months. The Old Continent is still worth over three quarters of company sales. In the region Asia-Australia the drop in sales is limited to -2.2% (retail) and -11.5% (wholesale). In North America, where Esprit closed all of its own locations, sales in wholesale are almost halved (-47.3%).
16 more shops to close
Therefore Esprit warns its shareholders for a “substantial loss” across the entire financial year (which ends on 30 June), attributed to a “bigger than expected operational loss” (no numbers are given) and one-off provisions for takeovers of activities in China, the closing of sixteen of its own locations, leases of another 44 onerous shops and an inventory adjustment.
Current management says it is still working hard on initiatives for the short and long term to revitalise the company, with a specific focus on product improvement. It can however only conclude that (potential) investors should be careful when trading stock of the company. Not a superfluous warning: when the exchange opened in Hong Kong the share immediately dropped 6.6%.