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Esprit's turnaround plan dampens results

Esprit’s new strategic plan saw it’s results for the six months to 31 December 2018 take a hit as the fashion group focuses on restoring sustainable growth and profitability.

Revenue was down 14.4% to HK$6.8bn (£651m) year on year, affected by the group’s “strategic rationalisation of its distribution footprint” which has resulted in an 11% space reduction compared to the same period last year. It was also impacted by a weakness in product and brand identity, both of which have been addressed in the new strategy.

Gross profit margin decreased by 1.6 percentage points to 51.3% due to investment in product alongside a higher level of discounting. The group reported seeing positive improvement from a quarter-on-quarter perspective.

The group had a net loss of HK$1.7bn (£171m) for the period.

Loss before interest and taxes (LBIT) was HK$332m (£32m) compared with a loss of HK$136m (£13m) in the same period last year. 

Restructuring cost-cutting, including staff costs, occupancy costs, logistics, marketing and advertising expenses caused an 11.9% decline in regular operating expenditure compared to 2017.

The new strategy will focus on sharpening the brand identity, improving the product offering and restructuring the cost base by building a more efficient organisation.

Esprit chief executive, Anders Kristiansen, said: “We expect the next two financial years to be a period of transition. We are reducing complexity and right sizing the organization. At the same time, we are working on the elimination of our loss-making stores. In parallel, we are building a new model for the future.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.”

He added: ”Overall, the group expects a compound annual growth rate in revenue of a mid-to-high single-digit percentage in LCY [local currency terms] between FY19/20 and FY23/24. In terms of underlying operating profit (EBIT), the group expects to achieve break even 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.”

 

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