Esprit books profit in H1 but revenues drop 9.9 percent
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Management
Esprit Group revenue for 1H FY16/17 amounted to 8,323 million Hong Kong dollars (1,072 million dollars) against 9,315 million Hong Kong dollars (1,200 million dollars) in 1H 15/16, representing a decline of 9.9 percent in LCY, with development in the second quarter. Net profit reached 61 million Hong Kong dollars (7.86 million dollars) including a net tax credit of 74 million Hong Kong dollars(9.54 million dollars), compared with a net loss of 238 million Hong Kong dollars in the same period last year.
Financial performance by product and retail channel
Esprit Women and Edc, together representing 70.3 percent of the group’s revenue, recorded a decline in revenue of 5.6 percent and 6.4 percent in LCY respectively, with comparable retail sales (including eshop) declining by 2.6 percent and 1.4 percent, respectively.
Esprit Men recorded a revenue decline of 17.1 percent in LCY. Esprit said, due to the weak performance of men's division, the space allocated to their products in its retail stores is being reduced. The team managing Esprit Men's products has also been restructured and strengthened during the period under review.
Lifestyle and others recorded revenue of 1,424 million Hong Kong dollars (183 million dollars), a decline of 18.6 percent in LCY. This product group comprises mainly accessories, bodywear, shoes, and the sales and royalty income from licensed products such as kidswear, timewear, eyewear, jewelry, bed & bath, and houseware. The largest decline in revenue in this product group came from the kids division (-62.8 percent yoy in LCY) due to the licensing of this business to Groupe Zannier since January 2016.
Retail (excluding eshop) experienced 13.1 percent in LCY revenue decline in the period, larger than the reduction of retail sales space of -11.1 percent. However, the company said, despite the reduction of promotional activities and price markdowns, the level of sales per square meter was maintained stable in its full-price stores with 0.3 percent rise in LCY and the entire decline of sales productivity was caused by the off-price outlets with 14.9 percent decline in LCY. As for wholesale, the sales decline of 10.5 percent in 1H FY16/17 was significantly smaller than the corresponding reduction in sales space of -16.8 percent.
Revenue in Germany drops 6.3 percent
Germany recorded 4,140 million Hong Kong dollars (533 million dollars) revenue in 1H FY16/17, representing 6.3 percent decline in LCY. In terms of distribution channels, retail (excl. eshop), eshop, wholesale and the licensing business contributed 36.8 percent, 28.4 percent, 34.5 percent and 0.3 percent of Germany’s revenue, respectively. Germany Retail (excl. eshop) recorded revenue decline of 7.2 percent in LCY.
Germany Wholesale revenue declined by 6.4 percent.Rest of Europe comprising countries in Europe, except Germany, in America and in the Middle East recorded revenue of 3,048 million Hong Kong dollars (392 million dollars) in 1H FY16/17, representing a decline of 10.8 percent. Rest of Europe retail (excl. eshop) recorded revenue decline of 12.5 percent in LCY, which compares favorably against the corresponding decline in retail sales area of15.3 percent. The significant space decline was attributable to net closure of 17 unprofitable stores and the closure of 31 concession counters in the Netherlands as a result of the bankruptcy of a local department store. Rest of Europe wholesale revenue declined by12.5 percent.
Asia Pacific (APAC) comprising mainly China, Australia and New Zealand, Hong Kong, Singapore, Malaysia, Taiwan and Macau recorded revenue decline of18.8 percent in 1H. Asia Pacific retail (excl. eshop) recorded a decline of 21.5 percent against 18.5 percent reduction in retail sales area. Asia Pacific wholesale (excl. eshop) revenue dropped 42.6 percent against a 44.6 percent decline in wholesale controlled space.
Esprit undertakes space reduction measures
The company said, as the group continues to right-size its distribution footprint, total controlled space (retail and wholesale combined) was reduced by 31,270 sq. mtrs. in 1H FY16/17, coupled with the 71,431 sq. mtrs. reduction in the previous six months.
Esprit believes that from a retail perspective, the closure of unprofitable stores is fundamental in order to improve the results of the group and to establish a healthier platform for future growth in this channel. So the company executed a net closure of 9,412 square meters of retail sales area during 1H FY16/17, coupled with the net closure of 25,806 square meters in the previous six months.
With respect to wholesale, the company said, this channel continues to face persistent structural pressure and it continues to see elimination of non-performing locations by the company’s partners. As a result, wholesale controlled space was reduced by 21,858 square meters in 1H FY16/17, which coupled with the net closure of 45,625 square meters in the previous six months.
For the period under review, the group recorded gross profit of 4,371million Hong Kong dollars( 563 million dollars), which results in gross profit margin of 52.5 percent, representing an increase of 2 percent points.
The Esprit board has maintained the dividend payout ratio of 60 percent of basic earnings per share. In view of a small net profit recorded by the Group for the six months ended December 31, 2016, the board has resolved not to declare an interim dividend.
In brief
- The company however recorded a net profit of 61 million Hong Kong dollars against net loss of 238 million Hong Kong dollars in the first half of 2015.
Picture:Esprit