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Esprit set to revive brand via rights offer
Source: Bloomberg News |
October 23, 2012, Tuesday
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ESPRIT Holdings Ltd plans to raise as much as HK$5.2 billion (US$671 million) in a rights offer to fund efforts to revive its brand after reporting a first-quarter sales decline.
The apparel company will offer existing investors the right to buy one new share at HK$8 each for every two held, Esprit said in a statement to the Hong Kong stock exchange yesterday. Sales dropped 23 percent to HK$6.6 billion in the first quarter, it said in a separate statement.
Esprit is using a so-called rights issue to raise funds after missing earnings estimates for five straight years and losing customers to rivals such as Inditex SA's Zara. CEO Jose Manuel Martinez Gutierrez took over in September after the previous CEO and chairman quit within 24 hours of each other earlier this year.
"This is definitely going to be a blow to investors," said Steven Leung, a Hong Kong-based institutional sales director at UOB Kay Hian Ltd. "The rights issue may reflect a bigger cash flow problem. The company is spending way more than it earns and we haven't seen much progress in the transformation so far."
Esprit will issue no more than 656 million rights shares, it said. Excluding store closures, sales fell 11 percent on a local-currency basis, it said. First-quarter sales shed 0.2 percent on a comparable basis.
Total proceeds from the issue will amount to at least HK$5.02 billion, according to the company. Esprit doesn't have plans for further fundraising and will stick to the existing budget of HK$18.5 billion for its transformation strategy, Chief Financial Officer Thomas Tang told reporters on a conference call yesterday.
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