Gome Electrical outlines 2b yuan expansion as earnings rise 37.6pc
Gome Electrical Appliances Holding, the mainland's largest consumer electronics retailer by outlets, said it would spend up to 2 billion yuan (HK$2.23 billion) to expand after reporting a 37.61 per cent increase in earnings last year.
The Hong Kong-listed company would allocate between 1 billion yuan and 1.2 billion yuan to buy store locations with the rest going towards new store openings, renovations and building a logistics centre, said chief financial officer Zhou Yafei.
Gome said it planned to open 120 stores this year, bringing its network of outlets to 846.
In contrast, Shenzhen-based rival Suning Appliance had 632 stores at the end of last year, with 832 planned by the end of this year.
Gome said booming domestic consumption had lifted net income last year to 1.13 billion yuan from 819.17 million yuan a year earlier. That was below the 1.29 billion yuan median estimate of six analysts in a Bloomberg survey.
Underlying net profit, which excluded a non-operating loss of 505.5 million yuan from the revaluation of convertible bonds, foreign exchange losses and gains from investment properties, was 1.88 billion yuan, above the forecast.
Sales surged 71.77 per cent to 42.48 billion yuan from 24.73 billion yuan with operating profit jumping 97.3 per cent to 1.8 billion yuan.
Gome is facing stiffer competition from rivals, which also have big expansion plans.
Suning, which focuses on organic growth, last month reported operating profit last year of 2.25 billion.
Although sales of 40.15 billion yuan were less than Gome's, Suning delivered a net profit of 1.47 billion yuan.
Gome president Chen Xiao said accounting differences between mainland-listed and Hong Kong-listed firms was the reason why Gome, which has been more aggressive in buying small rivals, appears to be lagging behind in operating efficiency.
'On paper, it seems Suning management's operation is better than Gome,' said Yang Lei, an analyst with ABN Amro.
Mr Chen said Gome would maintain its strategy of enlarging its sales network through both organic growth and acquisitions.
'Some people think acquisitions will dilute earnings, but we think a bigger sales network is an advantage in leading the industry,' he said. 'Of course we will control costs and improve efficiency at the same time.'
Gome's same-store sales improved 3.11 per cent last year, compared with a 2.5 per cent drop in 2006, but the sales per square metre, another key performance measure, was similar to 2006.
Suning is focusing on its own expansion plans after giving up the chance to buy Beijing-based Dazhong Electrical Appliances last year, leaving that purchase to Gome, which aims to have more than 20 per cent of the market by 2011.
In February, Gome acquired Shandong-based Sanlian Commerce to boost its national presence. That followed the acquisition of Shaanxi's biggest mobile phone retailer Shaanxi Cellstar, Beijing-based Dazhong last year and Shanghai-based China Paradise Electronics Retail in 2006.
Mr Chen said Gome's acquisition targets for the future would be computer, communications and consumer electronics retailers.
Gome shares rose 2.5 per cent at HK$18.04 yesterday.
A final dividend of 10.6 HK cents was declared.