Fashion group Esprit Holdings has issued a warning it expects a net loss for its first half, to the end of December.

Based on a preliminary review of its unaudited consolidated management accounts, the net loss is expected to be in the range of about HK$950 million (US$121.5 million) to $980 million, compared to a net profit of $61 million in the same period a year earlier.

Esprit attributes the anticipated loss to the combination of three major factors:

1. Full impairment of the remaining balance of the goodwill and customer relationships in association with the group’s China business, which has had a “significant decline” in recent years, resulting in a negative impact of about $795 million before taxation.

2. A larger-than-expected drop in group revenue in the second quarter after expecting a modest decline as a result of strategic rationalisation of its distribution footprint. The decline was exacerbated by lower sales at its brick-and-mortar stores. As a result, loss before interest and taxation (LBIT) and before the China Impairment is estimated to be in the range of $150 million to $180 million for the first half, compared to LBIT of $13 million in the same period a year earlier. While gross profit margin had slightly increased and running expenses had further reduced in the first half, it was not enough to outweigh the negative impact of the revenue decline.

Esprit’s company secretary, Florence Ng Wai Yin, says the board wants to reassure shareholders that the group is in the midst of fine tuning its strategic measures to establish a solid platform for long-term profitable growth. “The retail environment continues to be challenging, and because of the seasonality of the business, the performance in the second half of a financial year is usually not as good as the first half. This means the financial performance of the group in the second half remains uncertain.”

Esprit expects to release its interim results at the end of next month.

This story first appeared on sister site Inside Retail Asia.

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