Esprit cuts costs, while haemorrhaging turnover and profits

Esprit keeps slipping away: both turnover and profit have been hit in the past financial year. Nevertheless, the fashion group has also seen signs that the restructuring and numerous store closures are finally bearing fruit.

A year of closures and write-offs

Esprit saw its turnover fall by 12.9% in the past financial year, representing a total of 12,932 million Hong Kong dollars (almost 1.5 billion euros). This decrease is, however, due to store closures – the total sales area decreased by no less than 14.3% compared to the previous year.

In the financial year to 30 June, the gross profit margin decreased by 1.1% to 50.3%, a fall that was mainly due to reducing inventories, according to the company. The net loss amounted to 2,144 million Hong Kong dollars (247.5 million euros), as a result of individual write-offs of the restructuring costs. Extraordinary costs also amounted to 1,493 million Hong Kong dollars (172.3 million euros).

“A much healthier cost structure”

Liquidating both inventories and under-performing stores was all part of the fashion group’s strategic plan, which was launched in November 2018. Esprit then set itself the target of saving USD 2 billion within two years, while improving the profit margin by 3-5 percentage points within three years.

Since the launch of the strategic plan (and its implementation)  a significant improvement can be seen and CEO Anders Kristiansen can pat himself on the back. According to CFO Thomas Tang, Esprit has a much healthier cost structure today.

Not only did operational costs drop by 16.6%, thanks to savings made in respect of personnel, stores and marketing, revenue decline also slowed every quarter, leading to a positive development in terms of sales figures. The decline in gross profit also diminished during the second half of the year, with the chain having to implement fewer discounts and price reductions. 

Wholesale plummets in Benelux 

In anticipation of improvements, Benelux is also suffering the consequences: Esprit has achieved a turnover of almost 190 million euros, 14.6% less than the previous year. Turnover in the group’s own stores fell by 11.1%, while wholesale sales even fell by 28%, significantly reducing the group’s entire wholesale turnover.

Esprit ended the financial year with 24 individual stores in the Netherlands and 21 stores in Belgium. It has also become common knowledge recently that five franchise stores in the Netherlands are closing due to the bankruptcy of a franchisee. In Belgium, the fashion chain itself has closed two stores, which translates into a 12% reduction in sales area. On a comparable basis, Belgian turnover fell by 4.4%.