HONG KONG Shares of Esprit Holdings Ltd (0330.HK) fell by nearly a quarter on Wednesday after the clothing retailer's chief executive resigned, casting uncertainty over its costly restructuring plan and efforts to revitalise a brand that it admitted last year had "lost its soul".
The company, which competes with Sweden's Hennes & Mauritz AB (HMb.ST) and Spain's Inditex SA (ITX.MC), said late on Tuesday its group chief executive, Ronald van der Vis, had resigned for personal and family reasons, marking a second senior management change in two months.
Esprit, which generates about 80 percent of its sales in Europe, has been trying to restructure its business under van der Vis' watch as it grapples with a slump in demand due to the euro zone debt crisis.
"The resignation of the CEO, combined with the departure of the former CFO Chew Fook Aun, is not seen as an isolated incident. It may suggest that the transformation, in particular revitalising the brand, is tougher than expected," said Alex Wong, a director at Ample Finance Group.
Chew quit for personal reasons in December and was replaced in April by Thomas Tang, a former chief financial officer of blue-chip property developer Sino Land Co Ltd (0083.HK).
Esprit did not announce a replacement for van der Vis, who would have played a key role in the company's HK$18 billion ($2.3 billion) restructuring plan due to be completed by 2015.
"With Mr. van der Vis' departure, it is unclear if Esprit has sufficient management resources and capability to drive and manage its transformation plan going ahead," said DBS Group retail analyst Alice Hui.
The company, which said van der Vis would step down by July 1, 2013, added that it would continue to execute its restructuring as planned.
Shares of Esprit, which sells everything from bed sheets to jeans, plunged as much as 23 percent to HK$10.36, their lowest since January 9. It was the biggest drop since October 1997.
The stock was last down 21.8 percent before trading was suspended by the exchange after the sharp fall, against a 0.34 percent gain in the benchmark Hang Seng Index .HSI.
The company's market value is now $2.24 billion, ranking it as Asia's No. 6 apparel retailer, down from third place in 2011, and fuelling speculation it could be an acquisition target.
"With the weakness in the stock price and the CEO's resignation, it escalates the possibility that the company could become a merger and acquisition target," said Tommy Ho, analyst at UOB Kay Hian.
Other analysts cautioned that a relatively weak outlook for its struggling business could be a deterrent.
Esprit shares, which fell 73 percent in 2011, are still up 42.7 percent from their September 2011 lows. The stock has risen about 6 percent so far this year, beating a 2.7 percent gain in the main index.
Esprit, which also competes in Asia with Japan's Fast Retailing (9983.T), said last year it was investing more than HK$18 billion up to 2015 as part of a restructuring plan that includes an investment of HK$1.7 billion a year up to that period to promote its brand.
As part of its restructuring plan, the fashion group had said it aims to double sales and points of sales in China by June 2015. It said in September that it wanted to double China sales to HK$6 billion ($773.23 million) over the next four years and expand its point-of-sales network to 1,900 from 1,000. ($1 = 7.7596 Hong Kong dollars)
(Reporting by Donny Kwok; Editing by Anne Marie Roantree and Chris Gallagher)
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