Esprit to close all stores in unprofitable North America

Esprit Holdings Ltd, the clothing retailer struggling to recover from last year’s 98 per cent earnings slump, plans to close all stores in North America after failing to find a buyer for the unprofitable business.

Hong Kong-listed Esprit intends to focus on “finding one or more license partner” to maintain the brand’s presence in North America, said Patrick Lau, head of investor relations and mergers and acquisitions, in an e-mailed statement. The US and Canadian subsidiaries haven’t decided on whether to file for Chapter 11 or equivalent Canadian proceedings.

“Esprit is cutting losses in a tough market that it hasn’t been able to break into,” said Andrew Sullivan, principal sales trading at Piper Jaffray Asia Securities Ltd. in Hong Kong. “Retailers in the US all face a difficult moment since US consumer spending continues to shrink.”

Esprit, which said in September its brand had “lost its soul,” rose as much as 3.9 per cent in Hong Kong after the announcement. Chief Executive Officer Ronald Van der Vis has said he plans to turn the retailer around by improving fashion designs to revive earnings in Europe while doubling China sales in four years.

The US and Canada business has lost HK$1.6 billion ($206 million) in a four-year period, Esprit said last year. “Our North American subsidiaries’ current intentions are to close all stores in North America unless a potential partner for North America is interested in taking over any of the stores,” Lau said.

The clothing retailer had been exploring the sale of its US and Canadian operations, three people familiar with the matter said in August.

Esprit in September reported full-year profit plummeted 98 per cent to HK$79m after it booked costs for closing stores worldwide and selling its operations in the US and Canada. It was the third consecutive decline in annual profit for the casual clothing maker that makes 79 per cent of sales in Europe.

Chief Executive Van der Vis is setting up design teams in Paris and China and has hired managers and designers from Adidas AG, Puma AG, Hennes & Mauritz AB. Esprit shares have risen 17 per cent this year, better than the benchmark Hang Seng Index’s 11 per cent gain. The stock, which lost 73 per cent in 2011, traded 2.8 per cent higher at HK$11.76 at the midday break in Hong Kong today.

Negotiations with landlords for ending store leases have begun, Lau said. In North America, Esprit had 93 outlets as of September 15. The brand was founded in San Francisco in 1968.