Fashion chain Esprit's H2 profit down; eyes expansion

Date AddedSeptember 16, 2009 12:42:18 AM

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* H2 profit down 40 pct; lagging forecast

* Eyes expansion of market share in France

* Plans 60-80 new stores in fiscal 2009/2010

* Sees continued weakness in wholesale orderbook (Add details and comment)

HONG KONG, Aug 26 (Reuters) - Esprit (0330.HK), the world's No.6 fashion retailer by market value, on Wednesday posted a 40 percent fall in second-half profit, as global economic woes took a bite out of its core European market. But the company said it would focus on expansion to tap potential growth as the economy recovers.

"We will continue global expansion as we build the brand's relevance and visibility, increasing customer awareness of our brand by opening stores in prominent shopping locations in these markets," it said in a statement.

France, in which Esprit has a less than 1 percent market share, is among the markets in which it aims to open more stores and increase brand presence. It also plans to develop underperforming markets in Australia, Canada and the U.K. The company aims to open 60 to 80 stores in fiscal 2009/2010 and plans to spend about HK$800 million on retail expansion, with another 130 to 140 franchise stores set to open in the coming year.

Esprit said it expected continued weakness in its wholesale orderbook in the first half of fiscal 2009/2010.

Esprit, whose competitors include Hennes & Mauritz (HMb.ST), and Gap (GPS.N), derives nearly half of its retail turnover from Germany, but is pushing into developing markets such as China, where it runs a joint venture with China Resources (0291.HK).

The retailer, which sells everything from bath towels to shoes, posted a net profit of HK$1.89 billion ($244 million) for the second half of its fiscal year through June, down from HK$3.16 billion a year earlier, according to Reuters calculations from previously reported figures.

The results lagged an average estimate of HK$2.44 billion in the second half, according to 15 analysts polled by Reuters Estimates.

Esprit said the second half of the fiscal year had been challenging for the retail segment on rising unemployment rates, continued restrictive lending to consumers and the outbreak of the H1N1 influenza strain, which damped consumer confidence further. Its wholesale segment was also hit as customers rationalised orders on the uncertain timing of a market recovery, and the bankruptcy of several major department stores, Esprit said.

The company reported a profit of HK$4.75 billion for the fiscal year ended June, short of a consensus forecast for a HK$5.29 billion profit, and down 26.4 percent compared with a year-earlier profit of HK$6.45 billion.

Net profit margin fell to 13.8 percent from 17.3 percent a year earlier.

Analysts said the decline in sales was widely expected but the opening of new directly managed stores in Europe and relatively resilient consumer demand in Asia might support its sales. In May, Esprit said it would continue to open new stores but had deferred store expansion in Portugal and Spain as their economies looked weak.

Esprit's shares have been under pressure on concern over its earnings outlook in its core markets in Europe, in particular Germany, which constitutes half of its revenue, and also after a reshuffle of its management. Continued...

Shares in Esprit eased about 1.5 percent in the January-June period The stock underperformed a 27.7 percent rise in the broader market .HSI during the period.

The stock rose 3.2 percent to end at HK$59.90 on Wednesday. (US$1=HK$7.75) (Reporting by Donny Kwok; Editing by Chris Lewis)

Published Date: 26 August 2009