Esprit says to switch more sourcing from Bangladesh

Monday, 14 February 2011 00:01 - - {{hitsCtrl.values.hits}}

HONG KONG (Reuters) - Europe-focused clothing retailer Esprit Holdings posted a 21 percent fall in first-half net profit and will switch its textile sourcing to Bangladesh from southern China to cut costs.

Esprit, like rivals such as the world’s No.3 fashion retailer Hennes & Mauritz, faces the challenge of rising raw material costs, such as cotton, which will pressure sales of budget clothing chains.

“We have identified the opportunities to diversify our portfolio in different countries. One of the countries that we have identified is Bangladesh,” Esprit’s Chief Executive Ronald Van der Vis told a news conference.

“We will open selectively new sourcing offices in future in markets where we believe there are opportunities for us.”

The apparel retailer, Asia’s third largest by market value, also plans to set aside HK$1.3 billion in capital expenditure in the second fiscal half, with an aim to increase retail selling space by 5 to 10 percent for the full fiscal year.

Esprit, whose competitors include Swedish clothing retailer Hennes & Mauritz, U.S. group GAP and Spanish group Inditex, posted a net profit of HK$2.14 billion ($275 million) for the six months to end-December.

The result was slightly lower than an average estimate of HK$2.16 billion from five analysts polled by Reuters.

Rising raw materials prices and labour costs will likely pressure margins and hence Esprit has decided to cut costs by increasing sourcing its textiles from other countries, such as Bangladesh, instead of China where costs are climbing, it said. However, Esprit, which currently derives 80 percent of its sales from Europe, hopes to rely more on the Chinese market for growth.

Esprit, which sells everything from bed sheets to jeans, saw revenue from its retail business rise 8.7 percent in local currency during the six-month period. Excluding China, retail turnover growth was largely flat in local currency terms.

Same store sales in China are picking up, growing by an annual 0.5 percent in the first half, against an 8.5 percent drop a year ago.

“I am happy to see a change from negative to a plus, we need to accelerate that, expansion is on track,” Van der Vis said. “We will continue to accelerate wherever is possible.”