ZARA Parent Company'S Performance Is Improving Gradually.

Esprit Holdings Ltd.

The annual report of the holding company limited, the net profit of the Hongkong company in the 2016 fiscal year ended June 30th (HK $2100 HK $10000), was relatively small compared to its HK $19 billion 421 million turnover. The net profit has just exceeded 0.1%. If the special income of HK $1 billion 337 million is calculated, the company is still in a state of deficit.

Esprit Ltd. Ltd. CEO (Chief Executive Officer) Jose Manuel MARTINEZ GUTIERREZ

In the pformation process of Esprit Ltd. Si Jie world, the most important person is Jose Manuel MARTINEZ GUTIERREZ, Chinese name Ma Hao Si.

In fiscal year 2012, in 2011 of natural year, Esprit Ltd. launched the four year pformation plan, and then introduced Ma Hao Si after the 2012 financial year's earnings report.

Ma Hao Si is from the Zara parent company Inditex SA (ITX.MC) Indo textile, joined Esprit Ltd., the former director of distribution and operation of Spanish Company.

After joining Ma Hao Si, he introduced another three Inditex SA India textile or long term service Inditex SA India Textile executives Juan Chaparro, Elena Lazcanotegui and Jos Antonio Ramos, the three people have their own strengths in strategy, procurement and sales.

Esprit Ltd.'s four year pformation plan was launched under the leadership of Inditex SA Indo textile. Although Esprit Ltd.'s global performance is not excellent at present, if you look at the development track of the Hongkong company after the financial crisis, you can see that the Esprit Ltd. is almost falling from a 300 story high building, extending a hand at the 100 level.

At present, this hand has not been able to prevent this inertia acceleration from falling. It has dropped to almost 20 stories. However, the rate of descent is getting slower and slower. This hand is pulling up the Esprit Ltd. Ltd..

But at least it did not fall to the 1 floor and smashed to pieces.

Before talking about the pformation of Zara's former team led by Ma Hao Si to Esprit Ltd., we need to review the turnover of Hongkong company in the past 5 years.

In the 2012 fiscal year, Esprit Ltd.'s global sales of HK $301.65 HK $100 billion. If we push the time forward 4 years, in the 2008 fiscal year, the turnover of the company will reach HK $37 billion 227 million, which is almost two times that of the past fiscal year. The profits in the 2008 fiscal year also reach the peak of 64.50 HK $100 billion, and the net interest rate is as high as 17.3%.

2008 is a turning point. After this year, not only is Esprit Ltd. sprint global, a large number of companies from prosperity to decline, economic impact as fierce as the tiger, the same as the United States Gap Inc. NYSE:GPS (NYSE:GPS) and so on a large number of retailers.

Of course, it is the old saying. At the worst time, it is also the best time. Zara and H&M are the biggest beneficiaries, and they have grown into two sides of the clothing industry today.

The decline in sales will double the profitability of the retail industry.

Because you are not only profitable, but also a large number of loss shops, as well as inventory reduction.

In the 2009 fiscal year, Esprit Ltd.'s global sales declined by 7.4%, but in the same fiscal year, its net profit plummeted 27.4%, and net interest rate dropped to 13.8%, or 20.2%. In the same year, the Esprit Ltd. SLX ended 15 years of double-digit high speed growth and entered a recession period.

After entering the recession, Esprit Ltd. is still expanding, and its retail and wholesale sales are growing in the 2008, 2009, 2010 and 2011 fiscal years.

But this kind of growth is beneficial not only to sales but also to profitability.

In the end, Esprit Ltd., the world's most competitive and relatively small share (3-4%), has to retain its largest market in Asia and Europe, where sales and profits continue to grow.

In the 2011 fiscal year, the provision and closing of the loss shops in the North American market resulted in a net profit of only HK $79 million and a sharp fall of 81% in the year of Esprit Ltd..

Since then, Esprit Ltd. has been plunged into a continuous cycle of impairment due to customs stores, a year's loss in provision, and a year's profit cycle.

In 2012, at the beginning of 2013 fiscal year, when Esprit Ltd. Si Jie world was about to fall below the turnover of HK $30 billion, Esprit Ltd. Ltd. finally came to Ma Hao Si, which was also at the time when Esprit Ltd. was completely surpassed by Zara and H&M.

There was no place to lose even the Greater China of Germany's stronghold and company. Before that, the acquisition of Chinese associated companies resulted in an impairment of goodwill of HK $2 billion.

That is to say, when Mr. Ma Hao Si took office in September 2012, the Esprit Ltd. sprinter global is already on the defensive. It should not only rectify the consequences of the rapid expansion of the song, but also try to remain competitive in the core market.

Therefore, the improvement of profitability is far more important than sales at this time. Closing the loss shops and reducing costs has become the main task of Esprit Ltd..

When Mr Ma joins, the core earnings of Si Jie world are below the breakeven line for the first time.

Mr Ma's Ronald Van der Vis's "expansion" pformation plan has not been successful, but his annual savings of HK $1 billion has helped to some extent help Ma's implementation of his new pformation plan without financing high and high interest rates, and avoiding the doubling cost of the pformation plan.

For a long time, Esprit Ltd. has maintained a net cash flow of about HK $5 billion, which prevents possible greater risks arising from debt problems, including acquisition.

In the first financial year of the first year of operation, Esprit Ltd., the world's most successful company, has implemented the task of stripping the North American business plan, closing the loss shop and stabilizing the profitable shops, and the formation of a new team.

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The biggest change that Ma Hao Si brings to Esprit Ltd. is the so-called "vertical mode". The core of the model is as follows:

Simplify supply chain management (suppliers from more than 350 to below 230)

Category management team (pformation of all product segments)

New marketing mode (fully centralized procurement and marketing)

Narrow product range (product style selection reduced by 30% to 40%)

Seasonal product timetable (from 12 months to 4 seasons)

Quick marketing product development (Trend sub products and all other branches of rapid reaction products.

Up to 2 to 3 months.

Optimizing inventory management (central distribution center is waiting for the additional capacity and capacity required for replenishment).

In fact, this "vertical mode" can be seen as a "fast fashion" mode, which is the retail mode led by Zara.

Although vertical mode did not immediately improve the profitability of Esprit Ltd. Ltd., but at least in the past four years, the core business losses in the company have shown a dynamic improvement, and their revenues have basically stabilized.

Esprit Ltd. Esprit said that in the 2016 fiscal year as the first full year to adopt the vertical mode of fiscal year, the retail sales of Esprit women's clothing business recorded a 6.7% increase in fixed exchange rate, of which two categories of Casual and Collection recorded 7.7% and 8.8% retail sales growth respectively.

Esprit Ltd. thinks that the vertical model has the following achievements:

1) although retail net sales area decreased by 10.9% on a year-on-year basis, retail sales, including electronic stores, (67.3% of the group income) increased by 3.8% in local currency, driven by 8.1% growth in comparable local retail sales.

2) from the product point of view, the growth was driven by the first vertical segment, namely Esprit dress and EDC, and the sales of comparable retail outlets, including electronic stores, were increased by 10.3% and 11.2% in local currency respectively.

3) from a geographical point of view, retail sales, including electronic stores, grew by 8% in local currencies in Europe, while comparable store sales increased by 9.2% in local currencies.

4) in Germany, the largest market, according to the comparable market data released by TextilWirtschaft, the performance of Esprit Ltd. Ltd. is better than that of the market in the whole year (except one month), which is better than the market by an average of 9.5 percentage points.

The "vertical mode" of Ma Hao Si, or the fast fashion mode of Zara, has played a role in Esprit Ltd. Si Jie universal?

No matter from the improvement of profits and sales, we can think that the "vertical mode" has played a role. Esprit's women's clothing business in many European markets except China is better than the industry average, including the company's largest German market.

However, we need to take into account the downsizing of Esprit Ltd., which includes half a half of its turnover and a stable or mild period of low base. The next stage is to regain growth or to carry out a new recession. After all, there has been a glimmers of dawn in Gap Gap, but the present situation is obvious.

After the release of the annual report on Tuesday, the reports released by MMO and Merrill Lynch are all cautious, and the stock ratings of Esprit Ltd. are all negative. The rating is neutral, and Merrill Lynch is the "big market".

Xiao Mo believes that the sluggish wholesale and Asia Pacific business of Esprit Ltd. is the core of the group's weakness and sustained losses.

At present, wholesale business accounts for 34.8%, while Asia Pacific accounts for 14.9%.

The analysis basis of Merrill Lynch is similar to that of Xiao mo.

At Tuesday's earnings conference, Ma Hao Si said in an interview with CNBC that Esprit Ltd. had already had the worst time, but when answering the question of when to repeat past glory, it was a long process.

Whether it is a question or an answer, in fact, it is predictable.

Esprit Ltd.'s future prospects undoubtedly need three aspects: European market, wholesale business and Asia Pacific business.

The European market is the most positive of the three factors. The closing of stores and layoffs have greatly reduced operating costs and reduced sales area. The growth rate of fixed exchange rate sales is still rising. More importantly, the European market now accounts for 85.1% of the total, and the electricity supplier in the European market is as high as 22.9%.

Outside the "vertical mode", Ma Hao Si has another "omnidirectional channel mode" strategy for Esprit Ltd.'s global pformation.

The core of this strategy is to fully integrate all sales channels, such as online, offline, retail and wholesale.

Why should we integrate all channels, because retail stores are directly connected to consumers. If only we can understand the data and inventory of Direct stores in real time, it is obviously not enough. At present, the proportion of wholesale and e-commerce business of Esprit Ltd. is almost over half. Only through more channels can we change consumption information into product strategy, marketing strategy and so on.

The difficulty of "omnidirectional channel mode" is wholesale business. It is also the weakest part of Esprit Ltd. world wide.

Through the "vertical mode", Esprit Ltd. X. global hopes to control inventory comprehensively, including helping wholesalers manage inventory, acting wholesalers for collective marketing, and bringing wholesalers' customers into the group customer management system. However, due to the interest relationship and the wholesale decline of department stores that are currently concentrated in wholesale channels, the "omnidirectional channel mode" requires lengthy negotiations and cumbersome access and integration processes in the wholesalers' cooperation. The current wholesale business situation of Esprit Ltd. thinks that the integration effect in the wholesale channel is weak.

However, with the wholesale and retail business, the electricity supplier business, you withdraw me, the above situation still has the opportunity to solve the problem.

The other is the Greater China issue. China, Hongkong, Macao and Taiwan now account for 10.2% of Esprit Ltd.'s fortune global share, 13.2% 13.2% years ago.

Esprit Ltd., the world's largest market in China, has always been a department store channel. In fact, before 2012, the effect is very obvious. China is not only the second largest single market of Esprit Ltd., but also keeps double sales and profits after the financial crisis. This is closely related to China's overall economy. The overall fashion market is the same. After the financial crisis to 2012, the Chinese market is supporting the market.

After 2012, the contrast between China's Esprit Ltd. and its global market in China, the factors of economic downfall, all the competitors entering and accelerating expansion, the serious surplus of department stores and so on, resulted in the decline and decline of Esprit Ltd.'s global market in China.

Despite the fact that Esprit Ltd. is still unable to rule out its continued expansion in China, its realistic plan is to continue to implement the store plan in the Asia Pacific market, while Esprit Ltd., the most concentrated department store channel, is still accelerating.

Therefore, the center of the Asia Pacific market strategy is definitely not to expand the physical stores, but rather to make some additions in e-commerce.

In the 2016 fiscal year, the Esprit Ltd. Asia Pacific market accounted for only 6.1% of the regional market revenues, and 22.9% of the European market (except Germany) and the German market close to 30%. It also fell far behind the 23.3% of the group's overall e-commerce business.

However, the growth rate of the e-commerce market in the Asia Pacific market is 72.2%, much higher than that in the German market and the European market by 11.5% and 17.7%.

The development of electronic commerce may improve the profitability of Esprit Ltd. Esprit in China and the Asia Pacific market. However, from the current macro economy and the development trend of China's clothing and department stores, the opportunities for Esprit Ltd. to expand in China seem to be very small.

If the Asia Pacific market's share of about 10% can maintain a more balanced profitability, even even maintain its Hong Kong listed companies's influence in the domestic market, its role has been achieved. After all, Europe is the main battleground of Esprit Ltd..

In fact, Esprit Ltd. has already said it still has opportunities in the famous European market with lower penetration rate, but the Chinese market is hard to predict.

On the one hand, the economies of Germany, Britain, France and other countries in Europe still have growth, while the Asia Pacific, especially China, has great risks.

The improvement of Esprit Ltd. is also reflected in the open market in addition to its performance report.

Although the company's share price has plummeted from HK $112 before the financial crisis to less than HK $7, so far, as of the beginning of this year, as of the date of its annual report, so far, as the main apparel retailer in the world, Esprit Ltd. has become second only to Japan's competition for the performance of its Fast Uniqlo Co. Ltd. (9983.T) fast selling group.

Even though the above reports of Xiao Mo and Mei Yin Merrill maintained negative ratings on Esprit Ltd., the investment return rate of the company would be low. However, now investing in retail companies, except for Amazon, such an e-commerce company, the rate of return of traditional retailers is not wrong.

Besides, Xiao Mo and Merrill Lynch in the report have raised the target price of Esprit Ltd..

If Mr Ma's "vertical mode" has been effective in saving Esprit Ltd., it will be even more important to further optimize and execute the "vertical mode" and "omnidirectional channel mode".