Gome warns of loss in first half

PUBLISHED : Wednesday, 25 July, 2012, 12:00am
UPDATED : Friday, 08 May, 2015, 9:12am


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Gome Electrical Appliances, the mainland's second-largest home appliance retailer, warned of a loss for the year's first half yesterday.

The Beijing-based retailer's profit warning, which followed one issued by its chief competitor, Suning Appliance, earlier this month, underscores how the mainland's slowing economy is taking a toll on retail businesses.

Suning, listed in Shenzhen, said its net profit in the first half would drop 20 to 30 per cent from a year earlier after disappointing sales during the nationwide week-long holiday in May and the traditional peak season for air conditioner sales last month.

Gome said its first-half result would plunge into the red on falling revenue and a loss attributable to its fledgling e-commerce business. The company's net profit in the first quarter fell 88 per cent to 67 million yuan (HK$81.4 million) from 552 million yuan a year earlier.

The retailer's same-store sales look set to continue to weaken. Goldman Sachs said Gome's same-store sales would show a downward trend from this year until the end of 2014, given that most of Gome's stores were in tier one and tier two cities, which were more vulnerable to the softening of the economy. In the first quarter, Gome's same-store sales fell 34.4 per cent from a year earlier.

Over the weekend, Goldman slashed its 12-month target price for Gome to 80 HK cents a share from HK$2.20. Gome's shares closed at 76 HK cents yesterday on the Hong Kong stock exchange in a weaker overall market. The stock has plunged 25.4 per cent this month.

In addition to the declining sales, rampant price competition across the retailing sector in the second quarter added to the woes of Gome and other home appliances retailers, Mizuho Securities Asia said in a report late last week.

A weaker economy has damped consumer buying power and led to the unsatisfactory result in the May holiday period and in June. Rapid growth in e-commerce also dented the sales in stores, Mizuho said.

Competition has been intensifying, and a price war by some online appliance stores shows no signs of abating. The chief executive of 360buy, an e-commerce retailer of home appliances, said the price competition would continue into the second half.

Suning also commented that aggressive pricing would be the group's strategy for the next two years.

About 230, or 15 per cent, of Hong Kong-listed firms had warned of sharply lower interim profits and even losses since April, a report by Credit Suisse said. That compares with 290 profit warnings filed at the onset of the global financial crisis in 2008.