-- Esprit Shares plunge over 20%, following CEO's abrupt
resignation Tuesday
-- CEO Ronald van der Vis' resignation to take effect on or
before July 1, 2013
-- No replacement has been named
-- Analysts cite concerns about the company's long-term
outlook
(Adds analyst comments in 5th-7th graphs, context in 8th graph,
more analyst comment in graphs 9, 11-13)
By Chester Yung and Yvonne Lee
HONG KONG--Shares of Esprit Holdings (0330.HK) slumped more than
20% to a five-month low on Wednesday following the sudden
resignation of its chief executive, in the latest sign that the
fashion retailer faces an uphill battle to revitalize its brand and
change its fortunes.
Chief Executive Ronald van der Vis cited "personal and family
reasons" for his resignation, which is effective on or before July
1, 2013, Esprit said on Tuesday.
This is the second time in weeks that a high-level executive is
leaving Esprit. Its chief financial officer left earlier this
month.
At the midday close, the blue-chip retailer fell 21.2% to
HK$10.62, off an intraday low of HK$10.36. In comparison, the
benchmark Hang Seng Index rose 0.34%.
Analysts on Wednesday reiterated their concerns about leadership
transition at the company, with some expressing doubt about whether
the company's current strategy to reinvent itself is working.
"The news is negative, especially as Esprit is still at the
early stage of its transformation plan. With Mr. van der Vis'
departure, it is unclear if Esprit has sufficient management
resources and capability to drive and manage its transformation
plan going ahead," DBS Vickers Alice Hui said.
Ms. Hui said she expects Esprit's share performance to be
negatively affected in the near term, especially since shares have
risen more than 10% since early June.
Esprit competes with Hennes & Mauritz AB and Inditex SA in
the global retail apparel market. The fashion retailer is pressing
ahead with efforts to revive its brand after declaring last year it
had "lost its soul." But its reliance on Europe for the bulk of its
revenue also has been problematic, with persistent economic
weakness there weighing on growth. Its fortunes in the U.S.,
another key market, has been equally dismal; Esprit has been
closing down stores in North America in the last year after
unsuccessful efforts to rebuild the company's prominence in the
market where it began operations 44 years ago.
"The key question lies in the replacement and the future of
Esprit's transformation plan. We still expect Esprit's topline
growth to disappoint," Goldman Sachs said in a research note,
maintaining the stock at neutral.
Mr. van der Vis couldn't immediately be reached for comment.
Officials at Esprit couldn't immediately be reached for further
comment on a replacement for Mr. Van der Vis.
Bank of America Merrill Lynch Wednesday cut its 12-month target
price on the stock to HK$12.50 from HK$14.00 due to slow progress
at store remodeling and rising uncertainty over consistent
execution of the company's expansion plan. The firm said Mr. van
der Vis was the key person driving the group's four-year
transformation plan, starting from September 2011, and has rebuilt
the management team over the past 18 months.
Still, not all brokerages were negative on the stock. Macquarie
kept its outperform rating on Esprit, noting that while the
macroeconomic headwinds in Europe are likely to dampen the pace of
a turnaround, the stock remains undervalued.
"We also believe that Esprit has deep management strength to
continue executing on the transformation plan - although more
senior departures would cause our conviction to waver," Macquarie
said Wednesday, maintaining its stock price target of HK$24.00.
In May, Esprit reported its revenue for nine months ended March
31 fell 7.2% from a year earlier to HK$24 billion, weighed by
continued weakness in its wholesale business and European
sales.
Write to Chester Yung at chester.yung@dowjones.com and Yvonne
Lee at yvonne.lee@dowjones.com