Results in the first half of fiscal year 2019 were worse than expected. Revenue fell 15.8 per cent year-on-year to HK $6.766 billion. Fixed exchange rate income fell 14.4% compared with the same period last year. Overall gross profit margin fell 1.6 percentage points year-on-year to 51.3%, mainly due to increased investment in improving product quality and higher discount rates. Conventional operating expenses decreased by 11.9% at a fixed exchange rate compared with the same period last year, but non-recurrent expenses totaled HK $1.75 billion, resulting in a net loss of HK $1.773 billion, which was worse than expected.

We forecast earnings per share for the fiscal year 2019-2021 of-HK $1.213,-HK $0.609 and-HK $0.373, respectively. The company expects a low double-digit year-on-year decline in revenue in the second half of fiscal 2019, worse than forecast. We cut our revenue forecasts for fiscal year 2019-2021 by 3.1 per cent, 3.8 per cent and 3.6 per cent respectively. The company expects regular operating expenses to decrease by several hundred points year-on-year in the second half of fiscal 2019. However, due to potentially high non-recurrent expenses, we still expect the company to record an operating loss during the 2019-2021 fiscal year.

Lower the target price to HK $1.90 and maintain the "neutral" rating. Despite the reform measures taken by the company, its current business situation is still challenging. The continued decline in the number of customers in the company's stores indicates a decline in consumer recognition of the Esprit brand, which is likely to be the biggest problem, because consumer preferences are hard to change. Therefore, we are cautious about the expectation of a recovery in the company's performance. The new target price reflects only 3.8% room for growth, so we maintain a "neutral" rating.