Esprit's profit fell by 19% in the second half of the year, lower than market expectations

Esprit, one of the world's top 10 fashion retailers, announced on Thursday that its profits for the second half of the fiscal year dropped by 19%, falling short of market expectations. The decline was attributed to sluggish sales and a weaker euro. The company acknowledged that the wholesale sector still faces significant challenges as it approaches the end of 2010.

In a filing with the Hong Kong Stock Exchange, Esprit stated, “We anticipate that the wholesale market will continue to encounter numerous difficulties in the first half of the new financial year.”

According to the company, wholesale orders from July to November 2010 saw a year-on-year decrease in local currency terms, but they reached a median level in units. However, there were improvements on a monthly basis, especially in November, with increased activity in flash and repeat orders.

Analysts pointed out that the weak euro and the downturn in the wholesale segment have offset growth in other areas, negatively impacting overall revenue. Additionally, rising costs related to value-added services, rent, and labor in Asian markets could further pressure profitability in the coming year.

Esprit continues to focus heavily on the European market. For the upcoming financial year, the company has allocated HK$2.2 billion for capital expenditures. Of this, HK$738 million is set aside for opening over 100 new stores and expanding existing ones, while HK$406 million will be used for store renovations.

The company aims to boost retail sales by 5% to 10% in the new financial year, which will conclude in June 2011.

In terms of performance, Esprit reported net profit of HK$1.53 billion for the second half of the fiscal year ending in June 2010, down from HK$1.89 billion in the previous year. This result fell below the average analyst forecast of HK$1.73 billion, according to Reuters.

Looking at the full fiscal year, Esprit’s net profit stood at HK$4.23 billion, below both the market expectation of HK$4.439 billion and the HK$4.745 billion recorded in the prior year.

Shares of Esprit have declined by more than 13% this year, outpacing the 4.5% drop in the Hang Seng Index during the same period. On Thursday, before noon, the stock price rose by 1.4%.