* Net profit down 13 percent amid recession in key markets
* Turnover edges up but wholesale business under pressure
* Only 25 new stores in second half compared with 77 in first (Adds details, chairman's comments)
HONG KONG, Feb 4 (Reuters) - Esprit Holdings, the world's No. 5 fashion retailer, posted its first profit decline in a decade as global economic gloom took a grip of its key markets in Europe and Asia.
Analysts expect the Europe-focused apparel retailer to clock up a worse performance in the current second half to end-June, but say Esprit may emerge more resilient than rivals Hennes & Mauritz (H&M) and Inditex thanks to a diversified price range.
Chairman Heinz Krogner warned of more pain in future particularly for the company's wholesale business, which accounts for more than half its turnover.
"Wholesale customers are radically reducing positions as they are not able to get credit and we will not finance them. We will have to live with this uncertainty," said Krogner in a post-earnings webcast.
Esprit, which derives half its revenue from Germany alone, has been hurt by a recession in Europe's largest economy as well as a sharp slowdown in Asia, where Japan, Hong Kong and Singapore are also in recession.
July-December net profit fell to HK$2.85 billion ($365.8 million), a more than 13 percent decline from the HK$3.29 billion posted in the same period of the previous year.
Three analysts polled by Reuters had expected a fall of between 1 and 14 percent in profits, with Deutsche Bank predicting a 14 percent drop to HK$2.8 billion ($359 million).
CONSUMER SPENDING HIT
Although German retail sales may have picked up in the final two months of last year, rising unemployment and the impact of a global slowdown on local businesses point to a weak 2009.
Esprit's earnings are not expected to recover until the next financial year.
It is not the only cheap and chic fashion retailer to feel the pinch of a downturn in consumer spending as shoppers fret about the spectre of unemployment.
H&M, the world's third-biggest clothing retailer, posted a bigger-than-expected rise in fourth-quarter profit, but its December sales pointed to a weak start to the new year.
Esprit's turnover rose 2.9 percent shored up by a 10.3 percent growth in retail sales revenue while wholesale turnover fell 2.9 percent.
While the wholesale order book between January and May 2009 shows a single digit percentage decline, the company said in a statement, the actual wholesale turnover growth realised may deteriorate further if market conditions worsen.
Losses from new store openings and sluggish wholesale business shaved 15 percent off the company's operating profit in the six months ended Dec. 31.
Esprit shares slumped by nearly a fifth to their lowest in almost two years on Aug. 28, a day after its second-half earnings announcement, and after Chairman Heinz Krogner departed from his usual optimism and sounded a note of caution about the future.
The stock has lost almost half its value since then and its valuation is languishing at an historic low of eight times estimated earnings.
The company opened 77 new directly managed retail stores in the six-month period entering new markets such as Spain but will scale down its expansion to add only another 25 in the rest of the financial year.
"We wouldn't have done some of the things that we did if we had known how bad the situation is, like going to Spain which seems to be worst hit by the recession," said Krogner.
Esprit plans to focus on its profitable European markets while staying cautious on the UK and United States and stopping further expansion in Spain.
The stock ended 1.6 percent higher at HK$38.55 ahead of its earnings on Wednesday, buoyed by a rally in the broad market.
The departure of director Jerome Squire Griffith, announced on Sunday, may add to pressure on Esprit stock in the short term, said analysts, noting the resignation of former CFO John Poon in July weighed heavily on the stock at the time.
(Reporting by Parvathy Ullatil; Editing by Dhara Ranasinghe and Jacqueline Wong) ((parvathy.ullatil@thomsonreuters.com; +852 2843-6415))