Gome gains as online focus pays dividends

Appliance retailer's first-quarter profit soars 253 per cent year on year as restructuring plan targeting e-commerce starts to reap rewards

PUBLISHED : Tuesday, 20 May, 2014, 12:56am
UPDATED : Tuesday, 20 May, 2014, 6:22pm

Mainland home appliance retailer Gome saw its first-quarter profit jump 253 per cent year on year as its restructuring, with a new focus on e-commerce, took shape.

The company recorded 268 million yuan (HK$332 million) in profit for the first three months of the year, compared with 76 million yuan for the corresponding period last year.

Sales grew 8.21 per cent to 13.35 billion yuan, compared with 12.33 billion yuan in the first quarter of last year, while gross profit margin increased by 0.58 percentage point to 18.16 per cent, helped by lower costs due to store network consolidation and increased online retailing.

"We will gradually become China's largest and most professional omni-channel retailer," chief executive Wang Junzhou said.

After suffering a 597 million yuan loss in 2012, the company has been diversifying its product mix from electrical appliances to include baby products, cosmetics and health care products, as well as strengthening its supply chain and integrating online sales. The company earned US$144 million last year.

"Gome has been quite successful in expanding into e-commerce," AMTD Financial Planning's Kenny Tang Sing-hing said. "Apart from the profit, gross profit margin should further improve. You can see that sales are steadily recovering."

However, Gome's turnaround plan has been overshadowed by the scandal surrounding its founder, Wong Kwong-yu, who is currently serving a 14-year sentence in prison. Wong and his wife agreed in March to pay HK$420.6 million in compensation to the company for misconduct in a 2008 share repurchase, ending a five-year legal battle.

Founded in 1987, Gome was listed on the Hong Kong stock exchange in June 2004, making Wong, also known as Huang Guangyu, the mainland's richest man at the time according to Forbes and the Hurun Report. Wong and his wife remain Gome's biggest shareholders.

Gome closed its six remaining Hong Kong shops in January last year to focus on the mainland.

A Jefferies report in March said the electrical appliance retailing market was expected to expand from 1.3 trillion yuan in 2012 to two trillion yuan by 2016, driven by consumers upgrading from older models and urbanisation creating demand from new households.

However, it also noted that home appliance retailers faced fierce online competition from Tmall and JD.com as well as more traditional players such as Suning and Wal-Mart Stores.

Tang said the biggest challenge was from peers such as Suning. "Gome will put more focus on e-commerce compared to Suning and ask for better incentives from its suppliers."