Esprit to close all unprofitable North American stores

By Vinicy Chan and Lauren Coleman-Lochner - Bloomberg Businessweek

Feb. 1 (Bloomberg) -- Esprit Holdings Ltd., the clothing retailer struggling to recover from last year’s 98 percent earnings slump, plans to close all stores in North America after failing to find a buyer for the unprofitable business.

Hong Kong-listed Esprit intends to focus on “finding one or more license partner” to maintain the brand’s presence in North America, said Patrick Lau, head of investor relations and mergers and acquisitions, in an e-mailed statement. The U.S. and Canadian subsidiaries haven’t decided on whether to file for Chapter 11 or equivalent Canadian proceedings.

“Esprit is cutting losses in a tough market that it hasn’t been able to break into,” said Andrew Sullivan, principal sales trading at Piper Jaffray Asia Securities Ltd. in Hong Kong. “Retailers in the U.S. all face a difficult moment since U.S. consumer spending continues to shrink.”

Esprit, which said in September its brand had “lost its soul,” rose 1.1 percent to HK$11.56 at the close in Hong Kong trading. Chief Executive Officer Ronald Van der Vis has said he plans to turn the retailer around by improving fashion designs to revive earnings in Europe while doubling China sales in four years.

The U.S. and Canada business has lost HK$1.6 billion ($206 million) in a four-year period, Esprit said last year. “Our North American subsidiaries’ current intentions are to close all stores in North America unless a potential partner for North America is interested in taking over any of the stores,” Lau said.

The clothing retailer had been exploring the sale of its U.S. and Canadian operations, three people familiar with the matter said in August.

Profit Plunge

Esprit in September reported full-year profit plummeted 98 percent to HK$79 million after it booked costs for closing stores worldwide and selling its operations in the U.S. and Canada. It was the third consecutive decline in annual profit for the casual clothing maker that makes 79 percent of sales in Europe.

Chief Executive Van der Vis is setting up design teams in Paris and China and has hired managers and designers from Adidas AG, Puma AG and Hennes & Mauritz AB. Esprit shares have risen 15.4 percent this year, better than the benchmark Hang Seng Index’s 10.3 percent gain. The stock lost 73 percent in 2011.

Negotiations with landlords for ending store leases have begun, Lau said. In North America, Esprit had 93 outlets as of Sept. 15. The brand was founded in San Francisco in 1968.