Esprit CEO resigns in the midst of restructuring plan

Esprit’s share price tumbled more than 20% yesterday after chief executive officer Ronald van der Vis resigned for personal and family reasons. And more losses are likely to come as chairman and non-executive director Hans-Joachim Koerber followed suit and handed in his resignation yesterday as well, the company said after the market closed.

The loss of two such prominent figures in just 24 hours will deal a real blow to the Hong Kong-listed fashion retailer, which acknowledged last year that the Esprit brand has gradually lost its soul during the past few years as the company has let its customer focus slip.

The news of van der Vis’s resignation was announced by the company late on Tuesday and comes as Esprit pushes forward with its “transformation plan 2014/15”. Aimed at turning around the business and restoring the clear identity of the brand, the $2.3 billion transformation plan calls for measures such as the divestment of its loss-making North American operations and the closure of structurally loss-making stores, the company said in September last year.

Esprit reported a 30% drop in profits for the 12 months ended June 30 last year, down to HK$2.35 billion ($303 million), partly because of weak consumer sentiment. The company generates about 80% of its sales in Europe and the prolonged debt crisis is taking its toll.

But there has been some progress. During the first three months of 2012, Esprit’s retail comparable store sales grew 0.5%, after falling 4.6% during the preceding six months, the company said in May.

“Esprit itself is in a transformation phase that will continue through 2014/15, and the sudden resignation of the CEO may see the plan take longer than expected to implement,” Mohan Singh, an analyst at Citic Securities International, wrote in a note to investors yesterday.

Esprit stressed that it will continue to execute the transformation plan as planned and as approved by the board.

Van der Vis, who joined the company as recently as 2009, is resigning for personal and family reasons and has expressed his wish to pursue other interests, according to Esprit. “The Board regrets this, but respects Mr Van der Vis’s decision to devote more time to his personal endeavours,” the company said in a statement.

The resignation is effective on or before July 1, 2013 in accordance with his service contract.

Esprit’s share price fell by 21.8% to HK$10.54 before it was suspended at 1:30pm yesterday. And trading was active – more than 67 million shares changed hands, which was about six times the daily average in the past month, according to Bloomberg data.

“While we were not entirely convinced by Mr van der Vis’s turnaround plan for the company, we believe that the date of his departure and a likely lack of an obvious successor are uncertainties that will weigh heavily on the stock in the days to come,” Barclays analyst Vineet Sharma wrote in a note to investors yesterday.

“If this development is followed by further news on a takeout or management reshuffle, it could act as a significant positive catalyst,” he also said.

Sharma was probably not referring to the immediate resignation of the chairman as well though.

According to a brief statement issued after the Hong Kong market closed yesterday, Koerber resigned as chairman and independent non-executive director effective yesterday. He too cited personal reasons and the statement said he “has confirmed that he has no disagreement with the board”.

Raymond Or Ching Fai, who is also an independent non-executive director, has been appointed new chairman as of yesterday, it said.

Before joining Esprit, van der Vis had worked for more than 10 years in various senior management positions in Pearle Europe, a leading international optical retail group. He served as its chief executive officer between 2004 and 2009, according to the company’s website.

Esprit operates more than 800 directly managed retail stores worldwide and distributes its products via more than 14,000 wholesale locations internationally, occupying total selling space of over 1.1 million square metres in more than 40 countries, according to its website. Esprit has been listed on the Hong Kong Stock Exchange since 1993.