20131007-巴黎银行证券-ESPRIT_HOLDINGS_REDUCE_30页_1011kb

报告摘要

Esprit Holdings Summary

Core Content

Esprit Holdings is a fashion brand that operates in both retail and wholesale segments. The company has initiated coverage with a REDUCE rating and a target price (TP) of HKD8.50, which is below the current price of HKD12.50, resulting in a -32.0% downside. The report highlights the challenges Esprit faces in recovering from its trough and the reasons behind the cautious outlook.

Main Views

Turnaround Timeline: It typically takes 4–5 years for a brand to recover from its lowest point, based on case studies of other fashion brands like Burberry, J.Crew, Uniqlo, and Gap.
Business Model: Esprit's dual retail and wholesale model may hinder the effectiveness of its transformation plan in vertically integrating the supply chain.
Uncertain Outlook: The FY6/14 financial outlook is still uncertain as reforming strategies are in the early stages of implementation.
Valuation Concerns: Current valuations reflect optimism about recovery, but the report suggests a more conservative approach using a 1.0x FY6/14E PB (price-to-book) valuation.

Key Information

Financial Projections

Metric	2013A	2014E	2015E	2016E
Revenue (HKD m)	25,902	24,619	25,989	28,222
Recurring Net Profit (HKD m)	(811)	52	500	822
Recurring EPS (HKD)	(0.46)	0.03	0.26	0.42
EPS Growth (%)	(347.7)	(105.8)	856.9	64.6
Recurring P/E (x)	neg	463.9	48.5	29.5
EV/EBITDA (x)	23.6	13.9	10.6	-

Key Concerns

Sales Decline: A 5% year-over-year (y-y) sales decline is expected in FY6/14 due to ongoing retail space rationalization.
Profitability: Operating loss is expected at HKD159m in FY6/14, while net loss is forecasted at HKD98m.
Gross Margin: Will dip due to investments in product quality.
Cost Control: Cost cuts are expected to improve, but execution remains uncertain.
Inventory and Store Closures: Continued inventory write-downs and store closure expenses are expected to impact profitability.

Strategic Priorities

Stage	Focus	Strategies
Short Term	Stabilizing the business & returning to profitability	Inventory clean-up & store rationalization
Medium Term	Transforming brand image & business model	Developing value-for-money products & improving brand image
Long Term	Sustainable growth & new opportunities	Vertical integration & supply chain improvements

Key Assumptions

Metric	FY6/14E	FY6/15E	FY6/16E
Total Sales (HKD m)	24,619	25,989	28,222
Retail Sales (HKD m)	14,960	15,942	17,468
Wholesale Sales (HKD m)	9,466	9,849	10,550
Growth (y-y %)	(5.0)	5.6	8.6

Investment Thesis

The report initiates coverage with a REDUCE rating and a target price of HKD8.50, based on a 1.0x FY6/14E PB.
It is believed that the market's optimism about recovery is not yet justified, as the turnaround is expected to take more than a few years.
The report also notes that the current valuation reflects recovery optimism, but the long-term outlook remains uncertain.

Catalysts

Continued slide in sales efficiency at retail spaces.
Expanding costs and expenses.
Weaker than expected consumption sentiment.
Further write-downs on inventories and store closures.

Risks to the Call

Upside Risks: Higher SSSG (same-store sales growth), better cost controls, and earlier recovery in brand image.
Downside Risks: Slower than expected recovery, continued inventory write-downs, and challenges in brand rebuilding.

Company Background

Esprit Holdings designs and distributes fashion products under the ESPRIT and edc brand names.
The company has a combined retail and wholesale model, with 60.4% of sales coming from retail in FY6/13.
It has discontinued US operations and focuses on Europe (78.4%) for its sales.
The company is still restructuring its retail and wholesale networks.

Store Operating Efficiency

Esprit's retail stores are relatively smaller compared to its peers, with an average of 340 sqm/store.
Uniqlo, Zara, and H&M have larger store formats and higher sales per store.
Esprit's sales per sqm are lower than its peers, which affects its store efficiency.
The wholesale model has lower sales per sqm but higher efficiency in terms of cost and margin.

Rental and Staff Costs

Rental expenses are higher for Esprit due to its focus on flagship stores and higher rental costs per sqm.
Staff costs are also at the higher end compared to peers, which is attributed to its wholesale exposure.

Marketing and Brand Building

Marketing expenses have increased to 3.9% of sales in FY6/13 as part of brand rebuilding efforts.
The brand image has been deteriorating, and there is a need to improve product quality and brand awareness.

Strategic Implementation

The new management team, including the CEO Mr. Jose Manuel Martínez Gutiérrez, has implemented a transformation plan in May 2013.
The plan includes cost-cutting, brand image rebuilding, and supply chain optimization.
CAPEX and OPEX are expected to be moderate in FY6/14, with a target to reduce OPEX-to-net sales ratio to below 50%.

Comparison with Peers

Global Fast Fashion Brands/SPA: Inditex, H&M, C&A, and Fast Retailing are gaining market share due to clear brand positions, integrated supply chain, and solid store expansion plans.
Esprit's retail model is not as efficient as its peers, and it lags behind in sales per store and sales per sqm.

Conclusion

Esprit is currently in a restructuring phase and faces challenges in brand image, inventory management, and cost control. The target price of HKD8.50 reflects a cautious outlook on its recovery. While the company is trying to improve its business model and rebuild its brand, the execution of its strategies remains a key uncertainty.