Profit warning sparks sell-off in Gome

PUBLISHED : Thursday, 03 May, 2012, 12:00am
UPDATED : Friday, 08 May, 2015, 9:12am


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Shares of Gome Electrical Appliances yesterday fell to their lowest in almost three years after the company issued a profit warning for the first quarter.

The stock dropped 11.43 per cent to HK$1.24, the lowest since June 2009, after the company forecast on Monday 'a significant decline in its net profit' for the first quarter.

It attributed the poor performance to lower sales and a loss in its e-commerce business.

Analysts said demand for home appliances on the mainland had cooled since the central government ended a nationwide subsidy policy in December last year.

Under the policy, consumers were given subsidies when they replaced their old home appliances.

Linda Huang of Macquarie said in a research note the operating deleverage would continue in the first half as the impact from the subsidy's expiration could last for the whole year.

To boost sales, home appliance retailers including Gome have cut their prices sharply over the past months, which may have hurt their profit margins.

In addition, the tightly controlled housing market is also a reason for the weaker demand for television sets, refrigerator and washers.

Gome's major rival Suning Appliance, the largest retailer in the country, reported a 7.2 per cent drop in same-store sales and a 15 per cent fall in profit for the first quarter, reflecting the tough situation facing the entire industry.

Gome operates 1,079 shops across the country as well as two online shopping platforms. Net profit fell 6 per cent to 1.84 billion yuan (HK$2.27 billion) last year despite a 16 per cent growth in revenue.

Gome's stock has lost 28 per cent this year, against a 15 per cent gain in the benchmark Hang Seng Index.