Esprit profit misses forecasts, shares dive amid gloomy outlook

HONG KONG, Sept 26 (Reuters) - Esprit Holdings Ltd posted second-half profit that missed analyst forecasts and said a slowing Chinese economy and lingering euro zone problems continue to pose risks to its business, briefly sending its shares more than 8 percent lower.

Esprit, which sells everything from bed sheets to jeans and generates three-quarters of its sales in Europe, has been trying to restructure its retail business as sales slow, but the company said on Wednesday that any further deterioration in the global economy would impact its transformation plan and ultimately its earnings.

The retailer in August hired Jose Manuel Martínez Gutiérrez, an executive from Zara owner Inditex, as its new chief executive in a bid to reassure investors about its restructuring drive following uncertainty created by a management reshuffle. Martínez took up his post on Wednesday.

"Investors are still in doubt over whether the transformation plan can be a success, given the company is still facing a lot of challenges and uncertainties," said Steven Leung, a sales director at UOB Kay Hian. "They hope the new CEO can help speed up the process."

Esprit, which competes with Swedish clothing retailer Hennes & Mauritz AB and Spain's Inditex, posted a net profit of HK$318 million ($41 million) for its second half ended in June, compared with a HK$2.06 billion loss a year earlier, based on Reuters' calculations. That missed an average forecast of HK$455 million according to a survey of 10 analysts by Reuters.

Martínez was until recently group director of distribution and operations at Inditex and news of his appointment last month had driven Esprit's shares on Aug. 7 to their biggest one-day gain in 14 years.

One of the many challenges he faces is to boost Esprit's retail presence and revive its brand at a time of economic uncertainty in Europe and a slowdown in China.

PROFIT LAGS FORECASTS

For the full fiscal year, Esprit reported a net profit of HK$873 million ($112.6 million), missing the average estimate of HK$1.01 billion in the poll of 10 analysts.

The result was higher than the HK$79 million profit posted a year earlier when the company took a one-time charge of HK$2.3 billion to set aside provisions for the closure of stores.

The overall closure costs were less than expected and the company was able to write back HK$696 million of those provisions in the latest term.

Turnover for the fiscal year fell to HK$30.17 billion from HK$33.77 billion a year earlier, due to the sale of its North American operations, store closures and a tough business climate, it said. Retail turnover declined 6.1 percent in local currency terms and wholesale turnover dropped 16.5 percent.

The company has earmarked HK$1.5 billion for capital expenditure for the coming year, of which HK$400 million will be invested in new store openings, HK$700 million in refurbishments of existing stores and HK$200 million for IT projects.

Inditex, the world's largest clothing retailer, last week beat expectations with a 32 percent jump in first-half profit, boosted by rapid expansion in fast-growing emerging markets.

Esprit, which also competes with and U.S. group GAP Inc and Japan's Fast Retailing Co Ltd, said last year that it would invest more than HK$18 billion ($2.3 billion) up to 2015 as part of its restructuring plan.

It also aims to double China sales to around HK$6 billion over the next few years and expand its points-of-sale network to 1,900 from 1,000.

Esprit, founded in 1968 in San Francisco by Susie and Doug Tompkins who started selling clothes out of the back of their station wagon, shut all its stores in North America as of the end of March.

The company has a market value of around $2.2 billion, down from roughly $8 billion at the end of 2010.

Shares of Esprit have surged about 29 percent so far in 2012, outpacing a more than 10 percent rise in Hong Kong's benchmark Hang Seng Index. The stock closed down 6.9 percent on Wednesday, lagging a 0.8 percent fall in the benchmark index.