Bloomberg News

Esprit Slides After Morgan Stanley Cites Europe Debt Risk

September 21, 2011

(Updates with closing share price in second paragraph.)

Sept. 21 (Bloomberg) -- Esprit Holdings Ltd. plunged to the lowest level in more than nine years in Hong Kong trading as Morgan Stanley listed it as one of the Asian companies with the most risk related to the European debt crisis.

The clothing retailer, which makes 79 percent of annual sales in Europe, dropped 11 percent to HK$8.96, the lowest level since January 2002, at the 4 p.m. close in Hong Kong. Esprit has declined about 51 percent since reporting Sept. 15 that full- year profit declined 98 percent on restructuring costs.

Revenue from Europe, where the Hong Kong-based company plans to close 65 stores, fell for the third year in a row. Esprit, which said in its Sept. 15 earnings filing that the brand had “lost its soul,” plans to spend HK$6.8 billion on branding over the next four years, focusing its efforts in Germany, France, Belgium, the Netherlands and China.

The retailer is among 50 companies in Asia with “significant revenue exposure” to Europe, Jonathan Garner, Manas Dwivedi and Pankaj Mataney, analysts at Morgan Stanley, wrote in a note to clients today.

The European Union and International Monetary Fund resumed talks with Greek Finance Minister Evangelos Venizelos this week as the country seeks to win a sixth payment of rescue loans.

The casual clothing maker forecast an operating profit margin of 1 percent to 2 percent for the year ending June 2012 as it reported net income dropped to HK$79 million in the year ended June, the third consecutive annual decline. The clothier plans to close 80 outlets, including 24 in Germany, 12 in France and 13 in Australia.

‘Safe and Boring’

“We know earnings are going to be very low for the next two years so the market is now trying to work out the floor in the share price based on the brand value and the power of their retail network,” Aaron Fischer, head of consumer and gaming research at CLSA Asia-Pacific Markets, wrote in a note to clients today.

The decline in Esprit’s share price today is the second- biggest on the MSCI Asia Pacific Index.

The company’s product designs became “too safe and boring,” Chief Executive Officer Ronald Van der Vis said in a Sept. 15 interview.

Esprit, which hired the brand director and creative director of Hennes & Mauritz AB’s H&M, is setting up a team of designers in Paris to be “closer to the pulse of fashion,” Van der Vis said in the same interview. He also said he wants a new team in China, where sales more than tripled to HK$2.68 billion in the year ended June, accounting for 7.9 percent of the company’s total HK$33.8 billion sales.

Sales derived from the rest of the world fell an average of 5.6 percent in the period, according to Bloomberg calculations using data in Esprit’s earnings statement.

--With assistance from Stanley James and Frank Longid in Hong Kong. Editors: Frank Longid, Dave McCombs.

To contact the reporter on this story: Marco Lui in Hong Kong at

To contact the editor responsible for this story: Frank Longid at

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