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Esprit’s turnaround savings push up profits threefold but revenues still struggle

Profits up more than threefold may have grabbed the Esprit headlines, so why have its shares continued to fall Thursday? Still-weak sales numbers, with JP Morgan noting it’s yet to see signs of revenue improvement, and rating the stock at ‘neutral’.

However, CEO Martínez said the 12 months to June has been a “year of good progress” and marks the completion of the Strategic Plan, announced in 2013.

The Hong Kong-listed, Europe-focused fashion retailer’s multi-year turnaround plan included store closures, price adjustments, new return policies, and technology and distribution upgrades.

“As a result of our team’s intensive efforts, we successfully achieved reduction of operating costs this year by HK$1bn, one year ahead of targeted schedule,” added CFO Thomas Tang. “We aim to leverage our reduced cost base to further improve our profitability in the future.”

Esprit said Wednesday net profit jumped to HK$67m ($8.6m) for the year ended in June, from HK$21m a year earlier, slightly above the mid-point of its own forecast as it trimmed operating costs. Gross profit margin for the year also grew 1.4% to 51.6%.

The company last month forecast full-year net profit ranging HK$50m-HK$80m.

Revenue, however, fell to HK$15.9bn from HK$17.8bn and more negativity is expected.

“Growth will only come progressively as the group still faces a downsizing process in its wholesale and retail space (as loss-making retail stores still need to be closed),” Esprit said in a statement to the Hong Kong stock exchange.

The company expects to see a “modest decline” in revenues for the coming fiscal year as own retail space shrinks by single digits in percentage terms, it added.

However, Esprit also forecast a continued improvement in gross profit margin as it continues to cut discounts and promotions. Operating expenses are expected to fall in the single digits.

Esprit operates in 40 countries through 660 directly operated retail stores and more than 6,000 wholesale accounts.

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