The Esprit logo is displayed on the company's flagship store in Hong Kong. Its share price plummeted 17.6 percent to HK$15.08 on Thursday. Jerome Favre / Bloomberg

Blue-chip retailer Esprit Holdings reported on Thursday its full-year net profit to June 30, plunged 98 percent to HK$79 million.

In response, the company says it plans to accelerate growth on the mainland after making a provision of about HK$2.5 billion to sell its North American operations and close another 80 shops around the world - including 24 in Germany, 13 in Australia and 12 in France.

The result was well short of an average estimate of HK$3.16 billion from 16 analysts polled by Thomson Reuters.

The retailer recommended no final dividend payment to its shareholders. This marked the first time the company did not pay a final dividend since 1994.

Esprit's share price plummeted 17.6 percent to close at HK$15.08 per share in Thursday trading, the lowest since May 2003. The stock has lost 59 percent this year compared with a 17 percent decline on the Hang Seng Index.

The retailer announced in Thursday's press briefing that it has a plan to get the company back on track by financial year 2014-15.

The retailer's HK$33.7 billion turnover this year was nearly flat compared with a year ago. But with the steady increase in staff and occupancy costs as well as logistics and advertising expenses, the company's operating profit sank nearly 32 percent to HK$3.1 billion from a year earlier. The operating profit margin registered a decline of 4.4 percentage points to 9.2 percent compared with a year ago.

With an impairment charge of HK$2.5 billion that related to the divestment of the unprofitable North American operations and the closures of another 80 loss-making global retail stores, the retailer's net profit in 2011 plummeted by a hefty 98 percent to HK$79 million from HK$4.22 billion a year ago.

Excluding the one-off impairment charge, net profit was HK$2.35 billion, which was still 30 percent lower than a year ago.

Looking ahead, the retailer will spend HK$18.5 billion in the next four years to strengthen its business footprints in core markets such as Germany, Netherlands Belgium, France and the mainland.

"In the mainland, turnover is expected to double over the next four years to around HK$6 billion, with the store network increasing from approximately 1,000 to 1,900 points of sale," Esprit Group Chief Executive Officer Ronald van der Vis said at Thursday's press conference.

"The mainland is a very important market to us as the country already contributes 8 percent to the company's total turnover, making it the second largest country in terms of sales," van der Vis added.

"If the brand is to recover, management needs to invest significantly in the business, which means the earnings are not going to grow for a long period of time, say at least two years," said Aaron Fischer, an analyst with CLSA Asia Pacific Markets in Hong Kong.

Anne Critchlow, an analyst at Societe Generale in London, said before the earnings announcement that "Esprit's problems include the wholesale division losing selling space due to customer closures and insolvencies in Germany and the economic downturn in Europe."

Bloomberg and Reuters contributed to this story.

oswald@chinadailyhk.com

China Daily

(HK Edition 09/16/2011 page2)