After posting considerable losses in its previous fiscal year, fashion chain Esprit has returned to profitability in the first half of its current fiscal year. The turnaround was the result of fewer discounts and the closure of several onerous stores.
Weaker turnover because of store closures
Compared to the previous year, Esprit's total turnover in the first half of its current fiscal year dropped 9.9 % to 8.32 billion Hong Kong dollars (slightly above 1 billion euro). The company stated that its most important markets and channels have posted better results in the second quarter, demonstrating progress compared to the first quarter.
As the chain terminated 14.3 % of its store space in the past year after it shut down several onerous stores, a turnover drop was somewhat to be expected.
At the same time, Esprit also lowered its costs 10.3 %: “The Group has achieved a noticeable improvement in its financial performance thanks to the contribution of savings achieved in all cost lines mainly through the accelerated closure of loss-making stores", CFO Thomas Tang said. This has put the company well on its way to save up to 1 billion Hong Kong dollars (123 million euro) in costs compared to the previous fiscal year.
Moreover, Esprit's profit numbers were up despite lower turnover. Net profit reached 61 million dollars (7.5 million euro), a huge improvement over the 238 million dollar (29 million euro) loss previously. Gross profit margins grew 2 % to 52.5 % as a result of a reduction in promotional activities, both in its own stores and discounts granted to wholesale partners. These measures were partially offset by the weakness of the Euro.
The company will continue on the same path in the second half of its fiscal year: turnover will continue to drop, as will its costs, but profits will soar. In its latest full fiscal year, it still managed to become profitable despite a 400 million euro loss in 2014/2015, which was a sign that its restructuring plan was a success. Back then, its second half was very successful and it seems the chain expects a similar approach this year.