Bloomberg News

Esprit Shares Plunge After Report Says It Overstated Outlets

October 12, 2011

(Updates with comment from analyst in fourth paragraph.)

Oct. 12 (Bloomberg) -- Esprit Holdings Ltd., the biggest Hong Kong-listed clothing retailer, fell the most in three weeks in trading in the city after a magazine report said the company overstated its number of stores.

Esprit plunged as much as 14 percent, the biggest intraday drop since Sept. 19, to HK$9.51 and traded at HK$10.14 as of 3:05 p.m., after Next Magazine reported that 30 outlets listed by the company on its website in the Chinese cities of Shanghai and Shenzhen either don’t exist or couldn’t be reached. The benchmark Hang Seng index gained 0.9 percent.

The retailer has lost more than 40 percent of its market value since it said Sept. 15 full-year profit plunged 98 percent amid declining sales in Europe, intensified competition and costs to close stores and sell its North American operations. Esprit’s share price is vulnerable to any additional bad news, said Alex Wong, an asset-management director at Ample Capital Ltd. in Hong Kong.

“Esprit doesn’t have a very solid asset base,” Wong said. “Trust is a big issue right now.”

Four calls made to Patrick Lau, Esprit’s investor relations vice president, on his mobile phone went unanswered. An e-mail sent to him this morning also wasn’t answered. Chew Fook Aun, Esprit’s chief financial officer, didn’t answer a call to his mobile phone.

Next Report

Out of 37 directly operated stores and 35 department-store counters in Shanghai listed by the retailer, seven don’t exist and 13 couldn’t be reached, Next Magazine, a local publication, said in its report. In Shenzhen, where the company listed a total of 37 outlets, seven don’t exist and three couldn’t be contacted, Next said.

Esprit had 300 directly operated stores in China as of June 30, a net increase of 12 from last year, the company said in its annual report.

The retailer plans to more than double sales in China, the world’s most populous nation, in four years to make up for declining demand in Europe. In the year ended June, it had HK$2.68 billion ($344 million) in revenue from China, its fastest-growing market.

Revenue from Europe, where Esprit makes most of its sales, has declined for three straight years amid the region’s debt crisis and intensified competition from regional rivals Hennes & Mauritz AB and Inditex SA’s Zara.

Esprit rose to a three-week high yesterday after hedge fund Lone Pine Capital LLC, a Greenwich, Connecticut-based hedge fund, increased its stake in the company.

--With assistance from Bonnie Cao in Shanghai, Billy Chan in Hong Kong and Kana Nishizawa in Tokyo. Editors: Terje Langeland, Subramaniam Sharma

To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net


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