The world's fifth-largest fashion retailer, Esprit Holdings Ltd, posted a 16 per cent jump in annual net profit, benefiting from strong sales in European market that offset a poor product variety and lower value in euro.
Hong Kong-based Esprit, whose result matches market forecasts, also said it would invest over HK$1 billion during the 2006-07 period to expand its global distribution network and to upgrade IT systems to fuel long-term growth.
"With our proven growth strategies, we are confident that the group will again achieve the double-digit percentage growth target in the upcoming year, and continue to deliver excellent returns in the years ahead," Chief Executive Heinz Krogner said.
Listed respectively on Hong Kong and London stock exchange, Esprit admits that it has lagged behind in terms of product varieties, compared with its global competitors like Gap Inc and Hennes and Mauritz.
Esprit said it was facing "product problem" the result of a diversification into more fashionable women's wear, which forced it to slash prices to clear inventories.
The company is, nevertheless, confident with its future development and believes problematic sales tact will be corrected.
"You see we will gain momentum again," said Thomas Grote, president of Esprit Brand. "We are quite confident that we can continue this direction and we believe that everything is back on track."
Esprit, which derives more than four-fifths of its revenue from Europe, posted a net profit of HK$3.74 billion for the year ended June, against a restated HK$3.21 billion in the same period last year.
The net figure was in line with a forecast of HK$3.76 billion, according to the mean consensus of 18 analysts polled by Reuters Estimates.
The company, which was started in San Francisco in the 1960s, said its turnover had risen 13 per cent to HK$23.3 billion despite the euro falling by about 5 per cent during the period.
"There are few companies to deliver this level of growth persistently and I still see plenty of opportunity for mid-term growth," said Neil Abbott, head of global consumer products at First State Investments.
Abbott thinks Esprit's outlook remains positive and a higher than expected special dividend may further lift the stock.
Esprit's Hong Kong shares rose 15 per cent in the first six months of 2006, outperforming a 9.4 per cent gain in the benchmark Hang Seng index.
The stock closed up 2.2 per cent at HK$65.55 ahead of the results, beating a 0.8 per cent gain in the main index.
The company believes Europe especially western European countries will remain Esprit's growth driver.
The company's net profit is expected to rise to HK$4.66 billion for the 2006-07 fiscal year.
