Esprit Holdings, the Hong Kong-listed fashion retailer, reported its first drop in interim profits in a decade as the global financial crisis hit its main markets in Europe and lowered its margins.
Wholesale sales, which make up 53.2 per cent of turnover, performed particularly badly after cautious customers placed fewer orders. Some openings of wholesale partnership stores were cancelled as Esprit’s franchisees were unable to obtain credit.
The company said on Wednesday its wholesale order book between January and May fell by a single-digit percentage and turnover growth could deteriorate further if market conditions worsened.
Heinz Krogner, chairman and chief executive, said: “We have a challenge on the wholesale market”.
He said most of the retailers were financed with debt” and ended up with problems if banks restricted their lending.
“They are radically reducing their stock position even to the level that there might not be enough.”
Esprit, which derives 85.2 per cent of its sales from Europe – of which more than half is in Germany – is suffering from the financial turmoil and the weak consumer confidence hurting most retailers round the world. The Asia-Pacific region accounts for 12.2 per cent of group turnover.
The company expanded rapidly and reportedincreasing income in the past decade thanks to its ambitious expansion strategy in Europe. But for the six months to December 2008, net income fell 13 per cent from HK$3.3bn a year earlier to HK$2.9bn (US$374m).
Operating profit margin dropped from 21.7 per cent to 17.9 per cent in the same period.
Esprit said its first-half revenue rose about 3 per cent to HK$19.06bn from HK$18.53bn a year earlier.
The company, which operates 774 retail stores in more than 40 countries, opened 77 outlets, including its first in Spain, in the six months to December.
The company will open only 25 stores in the first half of this year.
Mr Krogner said: “We would not have done some of the things that we have done if we had known what would happen. For example, we would have not gone to Spain because it’s a new market.
“But we should not stop our space expansion, because we have to prepare for the future.”
Esprit said it would focus on its profitable markets in Europe this year and stop expansion in Spain.
It remained cautious on the UK and the US, but the company said North America would be essential for long-term growth.
The company also said it would focus on its mid- to upper-priced categories, for which it expected higher demand as consumers traded down from luxury brands.
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