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Europe slump eats into Esprit H1 profit

ESPRIT Holdings Ltd, the biggest clothing retailer listed in Hong Kong, said first-half profit fell for the first time in more than a decade because of the recession in Europe, where it makes four-fifths of its sales.

Net income dropped 13 percent to HK$2.85 billion (US$368 million) in the six months ended December, Esprit said in a statement to Hong Kong's stock exchange yesterday. That was lower than the HK$3.06 billion average estimate of five analysts surveyed by Bloomberg News.

Chairman Heinz Krogner is battling weakening demand as the global financial crisis has led to recessions in Europe, particularly Germany, where Esprit made about half of its HK$19.1 billion in first-half sales. The euro has also dropped about 12 percent since the start of last year against the Hong Kong dollar, the currency the retailer uses to report earnings.

"Demand is going to be weak as consumers' purchasing power has been weak because of the poor economic environment in Europe," Sophie Fan, Hong Kong-based consumer analyst at CSC Securities HK, said over the phone before the earnings announcement. "The euro has been depreciating. That would affect their exchange gains."

Germany's economy, Europe's largest, may dip 2.5 percent this year, its worst showing since World War II, the International Monetary Fund said on January 23. The country's unemployment rose almost twice as much as forecast in January.

Esprit's operating profit margin in the first half narrowed to 17.9 percent from 21.7 percent in the year-ago period, it said, while gross profit margin was little changed at 53.2 percent.

Sales at stores open for more than a year rose 6.3 percent, said Hong Kong-based Esprit, which sells casual clothing in more than 40 countries. Comparable sales are used to measure a retailer's performance because they exclude locations that have recently opened or closed.

The reported drop in net income is the first for the retailer since at least 1995, according to data compiled by Bloomberg News. The 3 percent revenue rise is the slowest growth in more than a decade.

Esprit rival Hennes & Mauritz AB said in December that sales fell 4 percent, the fourth straight monthly drop as German and British shoppers trimmed fashion purchases.


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