Esprit Announces Annual Results of FY17/18 and Strategy for Moving Forward

ESPRIT HOLDINGS LIMITED (“Esprit” or “the Group”; HKEx: 330) on September 18, 2018 announced its annual financial results for the year ended June 30, 2018 (“FY17/18”)

Financial Highlights

Revenue of the Group for FY17/18 amounted to HKD15455 million (FY16/17: HKD15942 million) representing a decline of -11.1 % year-on-year (“yoy”) in local currency terms (“LCY”). The decline in Hong Kong dollar terms was less (-3.1 % yoy) due to the strengthening of the Euro against Hong Kong Dollar (average rate increase of +10.3 %) during the year. The decline in revenue was the result of a combination of the impact from (i) the Group’s strategic rationalization of distribution footprint (total controlled space -9.3 % yoy) to improve bottom line, and (ii) weaker than expected retail sales performance due to decreased customers’ traffic.

The Group recorded a Gross Profit of HKD 7921 million, which resulted in a gross profit margin of 51.3 %, more or less the same as compared to last year. The slight decrease of -0.3 % point in LCY was mainly due to lower proportion of Retail (excl. eshop) revenue which represents 40.4 % of Group revenue this year as compared to 42.1 % last year.

Regular OPEX (excluding Exceptional Items) amounted to HKD (8830) million in FY17/18, representing a yoy decline of -3.3 % in LCY. We continue to see reduction in operating expenses, with savings achieved across all the major cost lines, except for a slight increase in marketing and advertising expenses (+0.9 % yoy in LCY) to strengthen our customer relationship management program.

In terms of profitability, the improvement in Regular OPEX was not sufficient to outweigh the negative impact from higher than expected decline in revenue. As a result, LBIT of underlying operations (i.e. excluding the Exceptional Items) for FY17/18 was a loss of HKD (909) million (FY16/17: HKD (186) million).

On top of the LBIT of underlying operations, our financial results for FY17/18 have been significantly impacted by Exceptional Items totalling HKD(1344) million. It is important to note that these Exceptional Items are primarily related to non-recurring provisions and impairments, which were triggered by continuous decline of the business in recent years. Majority of these are purely accounting adjustments, with no impact on our cash and operating performance.

Taking into account the significant negative impact from the Exceptional Items, the Group recorded a Net Loss of HKD (2554) million. Mr. Thomas Tang, Group Chief Financial Officer of Esprit, commented, “Due to the worse than expected decline in revenue, net cash balance reduced to HKD 4.5 billion as at 30 June 2018. We are reassessing the best possible use of our cash in order to drive sustainable growth and profitability.”

Moving Forward

The results of FY17/18 are far from satisfactory and the Group is currently in the midst of undergoing a thorough assessment to address this situation and develop corrective measures to ensure a successful turnaround.

Anders Christian Kristiansen, Group Chief Executive Officer of Esprit, said, “We have a fantastic opportunity to realize Esprit’s true potential. However, bold changes are needed to return Esprit to sustainable growth and profitability. We are currently affected by a combination of internal weaknesses. This includes a high cost structure which is no longer in line with the sales level, too many loss making stores in our portfolio, a lack of clear brand identity, and product that doesn’t meet our customers’ expectations. I have appointed an internal task force that has been working closely with me to gather consumer insights, and establish possible strategic initiatives. The next step will be to map out execution plans. With what I have learnt in the last months, I am firmly convinced we have the right ideas to put Esprit back on track. Later this Fall 2018, we will be ready to share our Strategy. I am genuinely excited about the next phase of the turnaround and remain very confident about Esprit’s future.”

Looking ahead, the operating environment will likely remain challenging in the upcoming financial year with the fallout from the trade war and rising interest rates, which may weigh on consumer sentiment and spending. In our drive to regain competitiveness, we must sharpen our brand identity, improve our product offering with a focus on quality, and create an inspiring omnichannel shopping experiences for our customers. These efforts will be driven by the results of extensive consumer research to ensure that our brand, products and channels properly resonate with  Esprit’s target customers. We will bring our customers and what Esprit stands for as a brand to the center of everything we do in order to become more relevant to our customers again and provide them with a strong brand experience.

Mr. Anders Kristiansen further commented, “Our profitable wholesale business will play a central role in the new direction of the Company. We want to become “best-in-class” in what we offer to our wholesale partners in terms of products, marketing and other support.”

Dr Raymond Or, Executive Chairman of Esprit, concluded, “While we certainly have a lot of work in front of us, I am convinced that by aligning the execution of our Strategy, the better days of Esprit are ahead of us.”

Founded in 1968, Esprit is an international fashion brand that pays homage to its roots and expresses a relaxed, sunny Californian attitude towards life. Esprit creates inspiring collections for women, men and kids made from high-quality materials paying great attention to detail. All of Esprit’s products demonstrate the Group’s commitment to make consumers “feel good to look good”. The company’s “esprit de corps” reflects a positive and caring attitude towards life that embraces community, family and friends – in that casual, laid-back California style. The Esprit style.

Esprit has a presence in over 40 countries with around 580 directly managed retail stores and over 5400 wholesale points of sale including franchise stores and sales spaces in department stores. The Group markets its products under two brands, namely the Esprit brand and the edc brand. Listed on the Hong Kong Stock Exchange since 1993, Esprit has headquarters in Germany and Hong Kong.