Retailer Esprit lags forecasts as China, weak euro weigh

Clothing retailer Esprit Holdings Ltd lagged forecasts as it swung to a loss for the year ended June 2015, weighed down by a weak euro and a slowdown in Germany and China, but said the world's second-largest economy is a focus for growth this year.

Esprit said on Wednesday its retail sales area may shrink this year due to previously announced store closures or downsizing of unprofitable outlets but that the most challenging part of a company transition was over.

With Chief Executive Jose Manuel Martinez Gutierrez at the helm, the company has been in the midst of an ambitious revamp over the past year that included store closures, price adjustments, new return policies, and technology and distribution improvements.

"In Asia Pacific, our emphasis is on China as the key market for growth. Despite the current economic and competitive challenges in China, we are putting a plan in place to further develop our business in the country," Martinez said.

Europe-focused Esprit reported a net loss of HK$3.70 billion ($477.45 million) for the year ended June 30, compared with a profit of HK$210 million a year earlier. The result lagged a forecast for a net loss of HK$1.2 billion, according to Thomson Reuters StarMine SmartEstimates.

"All in all, it's a year of surgery with our financial performance under pressure, but also with a lot of internal changes and we're moving in the right direction," Martinez said.

The company recorded a net loss of HK$4.4 billion in 2013.
Turnover in the year ended June 2015 fell to HK$19.42 billion from HK$24.23 billion.

Esprit, which earns the bulk of its revenues in Europe, said its gross profit margin should stay stable or increase this year and it expects to increase spending, in part on retail store refurbishments.

In Germany, Esprit's biggest market, turnover fell 21 percent to HK$8.96 billion, while turnover in Asia-Pacific dropped 13 percent to HK$3.21 billion.

The company said an unusually warm winter in Europe had put pressure on sales and resulted in steep discounts during that season. In Asia-Pacific, it attributed a slowdown in China's economy to weaker consumer spending in the region.

Esprit shares closed down 0.9 percent at HK$6.69 on Wednesday, compared with a 2.3 percent drop in the broader Hang Seng Index. Esprit shares have fallen 27.9 percent so far this year, compared with a 9.8 percent slide in the Hang Seng Index.

$1 = 7.7495 Hong Kong dollars