UPDATE: Esprit Surges as CEO Appointment Removes Overhang

-- Esprit taps Jose Manuel Martinez Gutierrez as chief executive

-- Mr. Martinez was previously group director of distribution and operations for Spain's Inditex SA.

-- Esprit's share price jumps after announcement

(Adds share price reaction and comment from analyst.)

 
   By Chester Yung 
 

HONG KONG--Esprit Holdings Ltd.'s (0330.HK) shares jumped more than 30% Tuesday afternoon as investors welcomed the fashion retailer's announcement that it tapped a senior executive from Zara parent Inditex SA as its new chief executive, resolving a major source of uncertainty that had been weighing on the blue-chip company.

At 0610 GMT, Esprit's Hong Kong-listed shares were up 28.6% at HK$12.82, down slightly from their earlier high of HK$13.80. Analysts said the appointment of Jose Manuel Martinez Gutierrez as chief executive removes a major overhang on the stock in the wake of the unexpected resignations of the company's chairman and chief executive in June.

Esprit's shares fell below HK$10.0 after the resignations, from above HK$13.00 before they were announced.

The fashion retailer said Mr. Martinez, 42, was previously the group director of distribution and operations for Inditex, the world's largest fashion retailer by sales and owner of the fast-fashion chain Zara. The appointment will take effect in or before September.

CLSA analyst Mariana Kou said the appointment is a positive development for Esprit given Mr. Martinez's strong retail background, but the question now is whether he will be able to help the company transform itself given the many challenges it is facing.

The European debt crisis has hit the company hard, and it has struggled to fend off stiff competition from Inditex and Sweden's Hennes & Mauritz AB, which sells its products under the H&M brand.

Last September, after reporting a 98% decline in profit for the fiscal year through June, Esprit declared it had "lost its soul" and announced plans to exit its North America business, close retail operations in three European countries and invest more than US$2.32 billion over the next four years to rebuild its brand.

In February, the company reported weak-yet-improved results, a 74% drop in first-half profit, and said its four-year "transformation journey" was well under way.

Write to Chester Yung at [e-mail]

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