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Thomas Streater
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I specialize in the Energy and Materials sectors because I have commercial experience within these areas. I do not have a long or short bias, I just try to find mispricing.
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  • Bargain Basement 1 comment
    Apr 21, 2013 2:57 PM

    For five years Esprit has been in steady decline. Now with the lowest market capitalisation in the Hang Seng Index it is in danger of dropping out of that benchmark. That fourteen of eighteen analysts have a "Sell" recommendation on Esprit speaks for itself.

    The apparel retailer is suffering from an identity crisis. With lines too expensive to be considered value and no longer fashionable enough for their price tags, Esprit has steadily lost market share to rivals.

    Gap had much the same problem, but improved designs and skillful marketing won it back some of the popularity formerly enjoyed. Compare this to Esprit's recent advertising campaigns. The hiring of supermodel Gisele Bündchen was a desperate attempt to change direction that showed Esprit was unaware of its own position in the market. It makes sense for Burberry to hire Kate Moss but Esprit is just not in that sector.

    Esprit's failing business model is more important. Unlike Fast Retailing, Esprit has not been offering functional, basic clothing at reasonable pricing. Unlike other "fast fashion" businesses like Inditex or H&M, Esprit has been unable to react quickly to the latest fashion trends. Esprit also suffers from slow turnover thanks to its wholesale segment accounting for nearly half its revenue. The associated inventory risk has proven costly.

    Since September 2011 Esprit has been undergoing restructuring, er, sorry, its "Transformation Plan". The stock is priced accordingly. With negative earnings, EV/LTM sales is a useful metric. At 0.54x Esprit is discounted compared to its more desirable rivals (Gap is the cheapest main rival at 1.1x).

    Appropriate comparables therefore, would be stressed apparel brands that were taken private last year such as Kenneth Cole at 0.5x (by Mr Kenneth Cole) or Benetton at 0.7x (by the Benetton family). This could be Esprit's route to a less painful restructuring, away from annoying analysts. Michael Ying, Esprit's leader during the glory days of the nineties, holds around 10% of the company. By teaming up with private equity, Ying could prove that, after Cole and Benetton, three makes it a trend.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • Beyonce announced as the face of H&M Summer 2013. Now H&M has recruited the world’s number one supermodels (Joan Smalls stars alongside Daphne Groeneveld, Lindsey Wixson and Liu Wen) for its latest campaign. http://bit.ly/ZOhlJK

     

    Do you think Esprit is trying to remind the public that it is still in fashion by hiring of supermodel Gisele Bündchen? The strategy may not work that well as HM does but it might still be useful to arouse the public's attention.
    25 Apr 2013, 01:09 AM Reply Like
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