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Esprit plans huge mainland expansion as retail sales surge

Esprit Holdings Ltd, the biggest Hong Kong-listed clothier, posted a six-month profit that beat analyst estimates after boosting sales in the stores it owns and operates. Its shares surged the most in 10 months. Net income in the six months ended December

Esprit Holdings Ltd, the biggest Hong Kong-listed clothier, posted a six-month profit that beat analyst estimates after boosting sales in the stores it owns and operates. Its shares surged the most in 10 months.

Net income in the six months ended December 2009 fell 5.2 percent to HK$2.7 billion, compared with the HK$2.26 billion mean estimate of four analysts surveyed by Bloomberg. Esprit rose as much as 11 percent to HK$59.6 in Hong Kong trading, the most since March 23.

Esprit will open larger stores and will maintain retail space growth of between 5 to 10 percent, said CEO Ronald van der Vis, who took over in November.

The retailer is redesigning stores to make them "trendier", Chairman Heinz Krogner said last year at the opening of an outlet in Hong Kong's Tsim Sha Tsui district, where it jostles for attention with brands such as Chanel, Prada and Ermenegildo Zegna.

"The improved retail sales is an indication that the market conditions are getting better and consumers are starting to spend again," said Renee Tai, an analyst at CIMB-GK Securities HK Ltd, who has a "outperform" rating on Esprit's stock. "The earnings were also helped by currency fluctuations."

Retail sales growth

Retail sales rose 9.5 percent to HK$9.64 billion while wholesale revenue, which includes transactions made at department store counters, fell 14 percent to HK$8.74 billion.

Esprit rose 7.9 percent to close at HK$57.9. The stock has climbed 57 percent over the past year, compared with a 63 percent gain for the benchmark.

Gross profit widened to 54.7 percent from 52 percent while operating profit margin widened to 18.2 percent from 17.9 percent, Esprit said.

Total revenue fell 3 percent to HK$18.5 billion and earnings per share fell to HK$2.11 from a restated HK$2.23 a share a year ago, Esprit said in a statement yesterday. Operating profit declined 1.3 percent to HK$3.37 billion.

The retailer of casual clothing, accessories and cosmetics in more than 40 countries is expanding in Asia, particularly in China, after sales in Germany, its biggest market contributing 45 percent of sales, slumped.

Esprit agreed in December to pay HK$3.88 billion for the 51 percent stake that China Resources Enterprise Ltd holds in their venture in the mainland.

Esprit plans to start consolidating the earnings of its China unit by the end of this month.

Mainland expansion

Esprit will expand to more than 450 cities in the mainland from the present 150, it said in its statement. The mainland will be the company's new "growth engine", Chief Financial Officer Chew Fook Aun said at a briefing yesterday.

Sales in Europe, where Esprit competes with Hennes & Mauritz AB and Zara owner Inditex SA, fell 3.1 percent to HK$15.7 billion in the fiscal first half. That accounted for 85 percent of the total.

Asia-Pacific sales fell 5.3 percent to HK$2.18 billion and revenue from North America and elsewhere rose 6.2 percent to HK$592 million.

The retailer will pay an interim dividend of HK$0.74 a share, compared with HK$0.8 a year earlier.

Same-store sales grew 0.4 percent in the fiscal second quarter, compared with a decline of 3.5 percent in the July-September quarter, the statement said.

The company added 10.2 percent more retail selling space in the fiscal six-month period compared with a year ago, the statement said.

Source: China Daily

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