Feb 3, 2010
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Esprit plans China expansion as first half profit falls

Feb 3, 2010

By Donny Kwok

HONG KONG, Feb 3 (Reuters) - Europe-focused Esprit Holdings (0330.HK), the world's No.7 fashion retailer by market value, posted a forecast-beating 5.2 percent fall in profit for its fiscal first half, saying it aims to expand its China network and broaden its footprint in Asia to improve its geographical balance.


The fashion group said there was vast potential to improve its penetration in China, and it would continue its expansion to more than 450 cities from the current 150.

Esprit, whose competitors include Swedish clothing retailer Hennes & Mauritz (HMb.ST), U.S. group GAP (GPS.N) and Spain's Inditex (ITX.MC), said it had been hit by a weak wholesaling environment in Europe and lacklustre retail growth in 2009.

"We believe China will become one of the most important growth engines of the group in the medium term," the company said in a statement. "It also represents an important step for the group in becoming a truly global company as it will strengthen our presence in Asia-Pacific considerably, hence improving our geographical balance further."

Esprit said it maintained a target of 5-10 percent year-on-year growth in retail selling space for the full financial year that runs through the first half of 2010.

Esprit, which sells everything from towels to shoes, posted a net profit of HK$2.71 billion ($349 million) on Wednesday 3 February for the first half of its fiscal year through December 2009, down from HK$2.85 billion a year earlier, as Europe remained weak while its wholesale division came under pressure amid tightened credit conditions.

The result beat an average estimate of HK$2.25 billion, according to five analysts polled by Reuters.

The company said growth in China and more favourable currency movements should help it swing back to net profit growth in the current second half of its fiscal year, including higher revenue contributions after the recent buyout of its China venture.

Esprit shares, which climbed 22.6 percent in the six-month period under review, have gained 4.9 percent so far this year to HK$54.30 at midday on Wednesday 3 February, outperforming a 6.1 percent fall in broader market .HSI.

The fashion group said the wholesale operating environment remained challenging as "wholesalers continue to order very cautiously".

Revenue from its retail business rose 9.5 percent during the period as it increased prices, while turnover from wholesale was down 13.9 percent from a year earlier on a loss of turnover from bankrupt customers and lower demand from existing wholesale customers.

Esprit said its retail comparable-store-sales growth came in at 0.4 percent in its second fiscal quarter against a contraction of 3.5 percent in the first.

Esprit had said in December that it would cut the number of new stores planned for the current fiscal year to 50, from an earlier target of 60-80, as consumers remained conservative and it aimed to open more stores in China. [nTOE5B90AZ]

Last week, the fashion group said it had received a strong response for a HK$2.6 billion ($335 million) five-year loan facility, which it would use to fund the acquisition of a remaining stake in a China joint venture, as announced in December. [nTOE60Q061]


((Reporting by Donny Kwok; Editing by Chris Lewis))

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