Clothing giant Esprit Holdings Limited presented the unaudited FY19/20 third quarter update of the company and its subsidiaries for the nine months ended 31 March 2020.
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Since the outbreak of the novel coronavirus, many countries have implemented public health measures and taken various drastic actions in order to slowdown the spread of the Pandemic. These vigorous measures have resulted in the temporary closure of many directly managed retail stores of the group and points of sale of the group’s franchise and wholesale partners due to the lock down of public life in nearly all the group’s markets. The Pandemic and the lock down have adversely and significantly affected the consumer sentiment, traffic and sales performance of the group across all distribution channels.
For the three months ended 31 March 2020, the group’s revenue decreased by 22.2% year-on-year in local currency terms. In terms of distribution channels, Retail (excluding eshop), Wholesale (excluding eshop) and eshop recorded year-on-year revenue decline of 39.8%, 20.1% and 2.6% in local currency terms, respectively.
At the same time, the group will continue to streamline its business operations in order to minimize costs and expenses. In addition to winding down its business in mainland China, the company has further decided to close all its 56 retail stores in Asia outside mainland China, specifically in Singapore, Malaysia, Taiwan, Hong Kong and Macau as part of its restructuring initiatives to focus resources and recalibrate operations in order to cope with the challenges posed by the Pandemic most effectively and efficiently.
For the nine months ended 31 March 2020, the 56 stores contributed approximately HK$267 million to the group’s revenue, representing less than 4% of the group’s total revenue for the relevant period. The closure of the stores is expected to be completed by the end of this financial year. After the closures, the group will continue its joint venture business in China as well as its wholesale and license business in Asia, and focus on its core markets in Europe.
Based on a preliminary assessment by the Company’s management, it is estimated that the store closure will result in exceptional one-off costs for store closures, impairment of assets and inventories and for staff severance payments in the range of HK$150 million to HK$200 million. The one-off costs will have a negative impact on the group’s results for the full financial year ending 30 June 2020.
The company is also negotiating with landlords across all its markets to seek rental relief, rent reductions and better terms and will terminate stores with rental terms that could not provide viable business performance. The company will utilize governmental assistance measures where available. Voluntary pay reduction by management is also helping to mitigate the adverse impact on the company’s financial performance.
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As at the date of this announcement, there are announcements from various governments about slowly reopening the economy again. The company has reopened selected stores in Germany, Sweden and the Netherlands. Nevertheless, the group is unable to predict when business normalcy will return and cannot quantify the actual impact of the Pandemic on the group’s full year results.