Esprit's profit fell by 19% in the second half of the year

Esprit, one of the world's top ten fashion retailers, revealed on Thursday that its profit for the second half of the fiscal year dropped by 19%, falling short of market expectations due to sluggish sales and a weaker euro. The company acknowledged that the wholesale sector is still grappling with 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 face numerous difficulties during the first half of the new financial year.”

According to the report, wholesale orders from July to November 2010 saw a year-on-year decline in local currency terms, reaching a median level in units. However, there was a monthly improvement in November, particularly for flash and repeat orders.

Analysts noted that the weak euro and the slowdown in the wholesale segment offset gains in retail sales, which had a negative impact on overall revenue. Additionally, rising costs such as higher rents and labor expenses in Asia could further pressure the company’s profitability in the coming year.

Esprit remains heavily focused on the European market. The company has allocated HK$2.2 billion for capital expenditures in the new financial year, with HK$738 million earmarked 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 its total retail sales by 5% to 10% in the upcoming financial year, which runs until June 2011.

Esprit reported net profits of HK$1.53 billion for the second half of the fiscal year ending in June, a drop from HK$1.89 billion in the previous year. This result fell below the average analyst forecast of HK$1.73 billion from 13 sources surveyed by Reuters.

The company’s competitors include global names like Hennes & Mauritz, Inditex, and GAP. For the full fiscal year ending in June this year, Esprit recorded a net profit of HK$4.23 billion, which was lower than the market’s expectation of HK$4.439 billion and also below the HK$4.745 billion recorded the previous year.

Esprit’s stock has declined by over 13% this year, outpacing the 4.5% drop in the Hang Seng Index. However, shares rose 1.4% before midday on Thursday, showing some signs of recovery amid ongoing uncertainty.