ESPRIT HOLDINGS LIMITED H ong K ong E x c hanges an d C l eari ng Li m i t ed and T he S t ock E x c hange of H ong K ong Li mi t ed t ak e no r es pons i bi l i t y f or t he c ont ent s of t hi s announc e m ent , m ak e no r epr es ent ati on as t o i t s a ccur a cy or c om pl et enes s and ex pr es s l y di s cl ai m any l i abi l i ty w hat s oev er f or any l os s how s oev er ari si ng fr om or i n r el i anc e upon t he w hol e or any part of t he c ont ent s of t hi s announc e m ent .
ESPRIT HOLDINGS LIMITED (Incorporated in Bermuda with limited liability) (Stock Code: 00330) UNAUDITED FY14/15 THIRD QUARTER UPDATE FOR THE NI NE MONTHS ENDED 31 MARCH 2015 THIRD QUARTER UPDATEThe board of directors (the "Board") of Esprit Holdings Limited (the "Company") presents the unaudited FY14/15 third quarter update of the Company and its subsidiaries (the "Group") for the nine months ended 31 March 2015. This announcement is made pursuant to Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.
Turnover by Product DivisionFor the 9 months ended 31 March
2015 2014 Change in %
Product Divisions HK$ million
% to Group
Turnover HK$ million
% to Group
Turnover HK$
Local currency
women 6,624 43.5% 8,060 42.8% -17.8% -11.1% women casual ^ 4,445 29.2% 5,575 29.6% -20.3% -13.9% women collection 1,802 11.8% 2,188 11.6% -17.6% -10.7% trend 377 2.5% 297 1.6% 26.9% 37.2% men 2,211 14.5% 2,834 15.0% -22.0% -16.8% men casual 1,780 11.7% 2,235 11.8% -20.4% -15.1% men collection 431 2.8% 599 3.2% -28.1% -23.3% others * 2,887 19.0% 3,618 19.1% -20.2% -13.4%
Esprit Total 11,722 77.0% 14,512 76.9% -19.2% -12.8%
edc 3,504 23.0% 4,350 23.1% -19.5% -13.0%
Group Total 15,226 100.0% 18,862 100.0% -19.3% -12.8%
^ Turnover of sports has been re-grouped from others to women casual since FY14/15. Comparative figures have been restated accordingly
* Others include shoes, accessories, bodywear, kids, licensing income and licensed products such as timewear, eyewear, jewelery, bed & bath, houseware, etc.
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Turnover by Region and by Distribution ChannelFor the 9 months ended 31 March
2015 2014 Turnover Change in % Net change
HK$ million
% to Group
Turnover HK$ million
% to Group
Turnover HK$
Local currency
in net sales
area ^
Retail # 4,289 28.1% 5,411 28.7% -20.7% -13.1% -4.3% Wholesale 2,738 18.0% 3,347 17.7% -18.2% -10.7% -4.4% Licensing and others 11 0.1% 15 0.1% -29.1% -22.1% n.a.
Rest of Europe | 5,630 37.0% | 7,122 37.8% | -21.0% -14.1% | -11.2% |
Retail # 2,984 19.6% 3,670 19.5% -18.7% -11.7% -2.1% Wholesale * 2,638 17.3% 3,443 18.3% -23.4% -16.8% -15.6% Licensing and others 8 0.1% 9 0.0% -12.7% -2.1% n.a.
Asia Pacific | 2,461 16.2% | 2,850 15.1% | -13.6% -11.5% | -17.6% |
Retail # 2,220 14.6% 2,417 12.8% -8.2% -6.0% -2.6% Wholesale 241 1.6% 431 2.3% -44.0% -42.2% -40.2% Others - - 2 0.0% -100.0% -100.0% n.a.
North America ** 97 0.6% 117 0.6% -17.7% -17.7% n.a.
Total 15,226 100.0% 18,862 100.0% -19.3% -12.8% -9.7% Retail # 9,493 62.3% 11,498 61.0% -17.4% -11.1% -3.1% Wholesale 5,617 36.9% 7,221 38.3% -22.2% -15.5% -14.1% Licensing and others 116 0.8% 143 0.7% -19.5% -18.1% n.a.
^ Net change since 1 April 2014
# Retail sales include sales from e-shops in countries where available
* For the nine months ended 31 March 2015, wholesale sales to Latin America and the Middle East have been re-grouped from Asia Pacific to Rest of Europe. Comparative figures have been restated accordingly
** Turnover from North America represents third party licensing income n.a. Not applicable
Retail Distribution Channel by Region (Directly Managed Retail Stores)As at 31 March 2015
No. of
Net opened
Net sales
Net change in
No. of comp
Comp-store
stores
stores ^
area (m2) net sales area ^
stores
sales growth
Germany * 151 (16) 123,064 -4.3% 122 -10.0% Rest of Europe 187 (4) 102,632 -2.1% 121 -9.4% Asia Pacific * 550 (20) 101,243 -2.6% 288 1.0%
Total 888 (40) 326,939 -3.1% 531 -8.2%
^ Net change since 1 April 2014
* All e-shops within Europe (i.e. Germany and Rest of Europe) and the e-shop in China are shown as 1 comparable store in
Germany and 1 comparable store in Asia Pacific respectively
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Wholesale Distribution Channel by Region (Controlled Space Only)
As at 31 March 2015
No. of stores
Net change in no. of stores ^
Net sales
area (m2)
Net change in net sales area ^
Germany 4,675 (228) 210,586 -4.4% Franchise stores 275 (14) 70,377 -3.3% Shop-in-stores 2,974 (107) 113,324 -5.0% Identity corners 1,426 (107) 26,885 -4.7%
Rest of Europe * 2,790 (78) 182,911 -15.6% Franchise stores 574 (104) 122,207 -21.5% Shop-in-stores 1,019 (19) 31,810 -2.3% Identity corners 1,197 45 28,894 1.6%
Asia Pacific 341 (188) 40,928 -40.2% Franchise stores 341 (188) 40,928 -40.2% Shop-in-stores - - - - Identity corners - - - -
Total 7,806 (494) 434,425 -14.1% Franchise stores 1,190 (306) 233,512 -21.4% Shop-in-stores 3,993 (126) 145,134 -4.4% Identity corners 2,623 (62) 55,779 -1.6%
^ Net change since 1 April 2014
* As at 31 March 2015, controlled wholesale points-of-sale and space in Latin America and the Middle East have been re-grouped from Asia Pacific to Rest of Europe. Comparative figures have been restated accordingly
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H ig h lig h ts fo r t he t hr e e m ont hs en ded 31 M ar ch 20 1 5 ( " 3 Q FY 1 4/ 1 5" )
T he t abl e bel ow se t s f ort h a sum m ar y of sal es perf orm ance by regi on and by channel f or t he 3Q F Y14/ 15 .
For the 3 months ended 31 March
2015 2014 Turnover Change in % Net change
HK$ million
% to Group
Turnover HK$ million
% to Group
Turnover HK$
Local currency
in net sales
area ^
Retail # 1,180 26.2% 1,594 26.3% -25.9% -9.7% -4.3% Wholesale 829 18.4% 1,170 19.4% -29.2% -13.7% -4.4% Licensing 4 0.1% 5 0.1% -28.6% -13.2% n.a.
Rest of Europe 1,636 36.2% 2,389 39.4% -31.5% -17.8% -11.2% Retail # 826 18.3% 1,135 18.7% -27.3% -13.3% -2.1% Wholesale * 808 17.9% 1,251 20.7% -35.4% -22.0% -15.6% Licensing and others 2 0.0% 3 0.0% -15.4% 5.9% n.a.
Asia Pacific 831 18.4% 859 14.2% -3.3% 1.1% -17.6% Retail # 767 17.0% 784 13.0% -2.1% 2.0% -2.6% Wholesale 64 1.4% 75 1.2% -15.2% -8.8% -40.2%
North America ** 30 0.7% 35 0.6% -14.3% -14.2% n.a.
Total 4,510 100.0% 6,052 100.0% -25.5% -12.2% -9.7% Retail # 2,773 61.5% 3,513 58.0% -21.1% -8.3% -3.1% Wholesale 1,701 37.7% 2,496 41.3% -31.9% -17.7% -14.1% Licensing and others 36 0.8% 43 0.7% -15.9% -12.8% n.a.
^ Net change since 1 April 2014
# Retail sales include sales from e-shops in countries where available
* For the three months ended 31 March 2015, wholesale sales to Latin America and the Middle East have been re-grouped from Asia Pacific to Rest of Europe. Comparative figures have been restated accordingly
** Turnover from North America represents third party licensing income n.a. Not applicable
In t he t hi rd qua r ter , t he T ransf orm ati on phase cont i nue d t o m ake goo d progre ss.
O ur l eane r suppl y chai n m ai n t ai ned i t s positi ve i m pact on our sourci ng cost s , enabli ng us t o rei nvest t he savi ngs t o f urt her i m prove t he va l ue - f or - m o ney of our prod uct s. C onse quentl y , the new collections developed under the Vertical Model, which were available in stores since February 2015 have received a more positive response. While this favorable response is encouraging, it is too early to assess the full impact of the new products on our sales given their short time in the market. As cus t om er s have t he oppo rt uni ty t o i n t eract w it h ou r new product s i n our s t ores, and as the benefits of the new Vertical Model are optimized over time, we expect a progressively clearer impact on sales to be evident in subsequent periods. To drive sales development and support its sustainable growth, we w ill al so be i ncreasi ng our eff ort s i n m arket i ng as w ell as i n i m p l em ent ing a n am biti ous om ni - channel m odel t ha t w ill enhance the cust om er experi ence acros s our m ulti p l e d i st r i buti on channel s.
T he savi ngs f rom a l eaner suppl y ch a i n are al so dri vi ng a year - on - year im provem ent of our G ross Profit m argi n , w hi ch i s key f or t he prof it abil it y of t he C om pany .
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We rem ai n fu lly confi dent t hat our current st rat eg i es w i ll enabl e us t o
turnar ound Espri t and t o es t abli sh a s t rong f oundat i on f or fut ure l ong t erm grow t h.
Notwithstanding the positive progress mentioned above and our confidence for a sustained turnaround of our business, 3Q FY14/15 remained challenging for Esprit. Sales performance during the quarter was adversely affected by:
i. The reduction in total controlled space of -9.7% year-on-year carried over from previous periods which results from our decision to close unprofitable retail stores and the decline of controlled wholesale space;
ii. Very weak performance of the end of season sale of our Aut umn/Winter merchandise during the month of January 2015;
iii. Continued weakness and heavy discounting in the apparel market in Europe, and particularly in Germany (as reported by local industry publication TextilWirtschaft), our largest market;
iv. Special discounts and returns granted to wholesale partners in Europe as support measure due to the weak performance in the first half of the financial year; and
v. Significant unfavorable currency impact resulting from an approximately
-17.7% year-on-year depreciation of the EUR/HKD exchange rate.
Due to the above factors, Group turnover declined -12.2% year-on-year in local currency in 3Q FY14/15 (-25.5% in Hong Kong dollar terms) to HK$4,510 million.
On a positive note, we are encouraged by the improvement in selling productivity of the retail operations since the introduction of the new collections, which began to be available in stores from February 2015. Retail turnover for the months of February and March 2015 declined year-on-year by -2.9% in local currency, better than our square meters reduction.
Also worth mentioning is that retail turnover in Asia Pacific grew by +2.0% year-on- year for 3Q FY14/15 i n local currency, notwithstanding a corresponding reduction of net sales area of -2.6%. The positive performance in Asia Pacific, where we did not face the same issues from Autumn/Winter 2014 season, was attributable to i) better availability of merchandise in stores as a result of improved logistics support; and ii) more successful tactical promotions in all of our Asian markets for the Chinese New Year holiday.
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Wholesale turnover amount ed to HK$1, 701 milli on f or 3Q FY14/15 (3Q FY13/ 14: HK$2, 496 milli on) representing a year-on-year decli ne of -17. 7% in local currency (-31.9% in Hong Kong dollar terms), as compared to a -14.1% year-on-year reduction in controlled wholesale space. We observed mixed sales performance across the regions.
In Europe, the wholesale operations in both Germany and Rest of Europe were negatively impacted by the year-on-year reduction of controlled wholesale space (Germany: -4.4%, Rest of Europe: -15.6%) carried over from the first half of the financial year FY14/15. Moreover, due to the weak sales performance in the first half of the financial year, and continued weakness in the business performance of the wholesale channel in the region in general, special discounts and returns were granted to wholesale partners as a support measure. As a consequence, the year- on-year decline in wholesale turnover for 3Q FY14/15 in Germany and Rest of Europe of -13.7% and -22.0% in local currency respectively, were higher than the corresponding reduction in controlled wholesale space of -4.4% and -15.6% respectively. Despite the challenges we see in the wholesale channel in Europe, we also see that the new products developed under the Vertical Model have been very well-received by our wholesale partners, as evidenced by their order intake, which has shown sequential improvement season by season, when comparing year-on-year development. This improvement is unfortunately not reflected in the wholesale sales performance due to the above mentioned reasons.
Wholesale turnover in Asia Pacific declined by -8.8% year-on-year in local currency for 3Q FY14/15 (first half of FY14/15: -49.3%), which was significantly less than the corresponding -40.2% year-on-year reducti on in controlled wholesale space. This improvement was mainly attributable to the success of our special return agreements with wholesale partners in China which helped to clear their considerably aged inventories in the same period last year and which have resulted in better order intake for 3Q FY14/15.
As a last relevant note, it is important to clarify that t he subst anti a l depreci ati on of the Euro cur renc y i n 3Q F Y14/ 15 had li m it ed i m pact on t he gross m argi n becaus e t he purch as e o f fi n i shed go ods f or 3Q F Y14/ 15 w as hedged l ast year a t bett er rat es t han t he prevai li ng m arket rat e . T he C om pan y i s acti vel y w orki ng to a l so m i ni m i ze a ne gati ve i m pact of t he exchan ge rat es i n co m i ng season s.
By O rder o f t he B oard Fl or en ce N g W a i Y i n C om pany Secr et ary
Hong Kong, 4 May 2015
As at the date of this announcement, the Board comprises (i) Mr Jose Manuel Martínez Gutiérrez (Group Chief Executive Officer) and Mr Thomas Tang Wing Yung (Group Chief Financial Officer) as Executive Directors; (ii) Mr Jürgen Alfred Rudolf Friedrich as Non-executive Director; and (iii) Dr Raymond Or Ching Fai (Chairman), Mr Paul Cheng Ming Fun (Deputy Chairman), Dr José María Castellano Ríos, Mr Alexander Reid Hamilton, Mr Camelo Lee Ka Sze, and Mr Norbert Adolf Platt as Independent Non-executive Directors.
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