Esprit US subsidiaries file for bankruptcy

Esprit Holdings Limited announced the bankruptcy of its two U.S. subsidiaries, adding to insolvency filings in Europe and Asia as the brand struggles to stay afloat.

Both Esprit U.S. Distributions Limited and Esprit U.S.Retail Inc. filed notices of Chapter 7 bankruptcy on Monday, according to a company announcement.

Esprit U.S. Distributions, an indirect wholly-owned subsidiary of Esprit Holdings, and Esprit U.S. Retail, a direct wholly-owned subsidiary of Esprit U.S. Distributions, had combined intra-group liabilities of approximately 315 million Hong Kong dollars, or about $40.5 million, as of June 30, per the company.

The Esprit brand, which was founded in 1968, was especially popular in the 1980s and 1990s. The company opened U.S. pop-up stores Los Angeles and New York as part of a comeback strategy, though economic challenges appear to have waylaid a those plans.

“Having considered the poor business and financial conditions, as well as the unsatisfactory operational results of the US Subsidiaries, the board of directors of each US Subsidiary has concluded that it is unlikely for the relevant US Subsidiary to be able to generate sufficient revenue to cover its high operating costs and fulfill its debt obligations,” the company said in its statement.

Esprit Holdings said it will no longer have control over these U.S. subsidiaries in the wake of the bankruptcy filings, and added that the financial results of both subsidiaries will be deconsolidated.

“The initiation of the bankruptcy proceedings is expected to result in a substantial reduction in the Group’s operational costs and eliminate the ongoing financial support from the Group,” the company said. “Moving forward, the Company plans to collaborate with skilled and seasoned partners to enhance and expand its asset-light licensing business.”

The filings come after 11 insolvency filings earlier this year from Esprit Holdings subsidiaries in Switzerland, Belgium, Germany and Denmark. The company’s subsidiaries in the Netherlands and Hong Kong filed for insolvency in July.

In the company’s August interim results announcement covering the six months ended June 30, Esprit Holdings reported a net loss of approximately HK$56 million and net liabilities of approximately HK$256 million, with bank balances and deposits of approximately HK$62 million.

In that earnings report, Esprit Holdings said it had been battling high costs related to inflation, interest rates and energy prices, as well as “the after-effects of the coronavirus pandemic and the consequences of international conflicts.” The combined challenges weakened the Group’s financial situation, which was then further impacted by “long-term leases of unsuitably sized stores, labor costs of [an] overly bloated workforce and expenses related to an overcapacity logistic setup.”

As a result, the company said it had become “financially unviable to continue the business” as it was currently structured.

Moving forward, Esprit Holdings said it had “decided to prioritize the expansion of its licensing operations” and that the “strategic shift will transform the Company into an IP management company, focusing on maximizing the monetization of the Esprit’s brand through licensing arrangements.”