Giordano payout twice its profit

PUBLISHED : Friday, 23 March, 2007, 12:00am
UPDATED : Friday, 23 March, 2007, 12:00am


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Retailer to distribute HK$395 million as dividends despite 50pc fall in earnings

Giordano International, a casualwear retailer with more than 1,700 outlets in Asia, has proposed to pay dividends almost twice the amount of its earnings last year, despite a 50 per cent plunge in net profit.

Because of a one-off tax expense imposed by the central government, net income slumped to HK$205 million last year, compared with HK$406 million in 2005 and the HK$325.5 million estimate by a Thomson Financial poll of 19 brokers. Sales declined 0.9 per cent to HK$4.37 billion.

Earnings per share amounted to 13.8 HK cents, down from 27.5 HK cents in 2005, but the company will keep total dividends unchanged at 26.5 HK cents a share, resulting in a payout ratio of 192 per cent.

The move to dispose HK$395 million in cash as dividends can make the company less attractive as a takeover target. Giordano had HK$665 million net cash at the end of December, compared with HK$827 million a year ago.

Tokyo-listed Fast Retailing, operator of Uniqlo clothing retail outlets, planned to buy a stake in Giordano in August last year. It ended the attempt one month later, saying Giordano's share price did not reflect 'the operational state and thus the inherent value of the company' and Giordano's management had also been 'reluctant to enter into any meaningful dialogue'.

Chairman and chief executive Peter Lau Kwok-kuen said the company decided on the dividend level after taking its cash level into consideration.

'We hope shareholders can get stable dividends. We have abundant cash and could afford paying back some to shareholders,' he said.

However, analysts said Giordano, with an extensive network in China, remained a vulnerable takeover target, given that management had a less than 3 per cent stake in the company.

The company's five biggest shareholders, including Aberdeen Asset Management and JP Morgan Chase, control almost 51 per cent of the retail chain.

Excluding a HK$66 million one-off tax expense following a central government review of Giordano's taxable income, the retailer's underlying profit dropped 33.3 per cent from a year earlier.

The tax ruling involved Giordano's transfer pricing which covers royalty fees its mainland retail operation pays to its Hong Kong headquarters. Mr Lau said it would result in an increase of less than one percentage point in the firm's effective tax rate, which stands at between 23 per cent and 25 per cent.

Mr Lau said the earnings decline last year was only 'temporary and not a structural problem'. He attributed the decline at operating level on a drop in gross margin and rental increase.

Gross margin fell one percentage point to 49.8 per cent due to a discounting strategy amid warm weather in winter while rental expense rose 20 per cent on lease renewals of 16 Hong Kong stores.

Giordano plans to open 120 stores this year, including 50 on the mainland. It added 73 stores last year in Asia to 1,767.

Shares in Giordano, which fell 23 per cent in the past 12 months, rose 0.89 per cent yesterday to HK$3.41 before the results announcement.