Esprit's chairman resigns in double blow as shares plunge

HONG KONG Wed Jun 13, 2012 7:35am EDT

A man walks past an Esprit store in Hong Kong's central financial district September 15, 2011. REUTERS/Tyrone Siu

A man walks past an Esprit store in Hong Kong's central financial district September 15, 2011.

Credit: Reuters/Tyrone Siu

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HONG KONG (Reuters) - The chairman of Esprit Holdings Ltd (0330.HK) resigned on Wednesday, dealing a double blow to the clothing retailer a day after its chief executive stepped down in a move that wiped out nearly a quarter of the company's share price.

The resignations have cast a cloud over the Europe-focused company's HK$18 billion ($2.3 billion) restructuring plan and put it firmly on the radar of private equity buyers.

"As they both resigned almost at the same time, the impact will be huge. Investors are likely to lose confidence in the company," said Linus Yip, chief strategist at First Shanghai Securities, adding further pressure is expected on the stock of a company which last year admitted it had "lost its soul".

The fashion group, which generates about 80 percent of its sales in Europe, has been trying to restructure its business as it grapples with a slump in demand due to the euro zone debt crisis, but the resignation late on Tuesday of its group chief executive, Ronald van der Vis, dealt a significant blow.

This was followed by an announcement on Wednesday evening that Hans Joachim Korber had resigned as chairman and would be replaced by Raymond Or Ching Fai, a move that added further confusion to the outlook for Esprit.

"With the weakness in the stock price and the CEO's resignation, it escalates the possibility that the company could become a merger and acquisition target," said Tommy Ho, analyst at UOB Kay Hian.

Banking sources told Reuters some private equity groups had previously looked at Esprit, which competes with Sweden's Hennes & Mauritz AB (HMb.ST) and Spain's Inditex SA (ITX.MC), and the share price plunge would likely attract renewed interest.

Esprit's struggling business contrasts sharply with Inditex, the world's largest clothes retailer, which on Wednesday posted a sharp rise in first-quarter earnings, showing it can sell to both fashion-hungry shoppers in emerging Asia and cash-strapped consumers in Europe.

Esprit, which said van der Vis had resigned for personal and family reasons, did not announce a replacement for the executive, who would have played a key role in the company's restructuring plan due to be completed by 2015.

The company said van der Vis would step down by July 1, 2013, adding that it would continue to execute its restructuring as planned.

The latest resignations come after CFO Chew Fook Aun quit for personal reasons in December and was replaced in April by Thomas Tang, a former chief financial officer of blue-chip property developer Sino Land Co Ltd (0083.HK).

BARGAIN COMPANY?

Shares of Esprit, which sells everything from bed sheets to jeans, plunged as much as 23 percent to HK$10.36 on Wednesday, their lowest since January 9. It was the biggest drop since October 1997.

The stock closed down 21.8 percent before the stock was suspended, against a 0.34 percent gain in the benchmark Hang Seng Index .HSI. Trading is due to resume on Thursday.

The company's market value is now $2.24 billion, ranking it as Asia's No. 6 apparel retailer, down from third place in 2011 and compared with a market value of around $8 billion at the end of 2010.

Esprit's shares, which fell 73 percent in 2011, are still up 42.7 percent from their September 2011 lows. The stock has risen about 6 percent so far this year, beating a 2.7 percent gain in the main index.

"Its global presence could make it appealing to potential buyers," said Alex Wong, a director at Ample Finance Group.

In May, Esprit posted an improvement in quarterly store sales and booked a write-back from divesting its North American retail operations.

Esprit said last year it was investing more than HK$18 billion up to 2015 as part of a restructuring plan that includes an investment of HK$1.7 billion a year up to that period to promote its brand.

The company, which also competes in Asia with Japan's Fast Retailing (9983.T), had said it aims to double sales and points of sales in China by June 2015.

It said in September that it wanted to double China sales to HK$6 billion ($773.23 million) over the next four years and expand its point-of-sales network to 1,900 from 1,000. ($1 = HK$7.8)

(Additional reporting by Denny Thomas and Farah Master; Editing by Anne Marie Roantree and Nick Macfie)

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