Sun Art shrugs off slowing Chinese economy; earnings leap 75 per cent
China’s largest hypermarket chain, Sun Art Retail Group, posted a 75 per cent jump in first-half net profit on Tuesday, helped by effective cost controls and an expanded sales network, highlighting its resilience to an economic slowdown that has sapped consumer demand and bloated inventories.
China’s economy has been slowing for six straight quarters, leading scores of companies to report or flag weak earnings and unnerving investors concerned that the world’s second-largest economy is struggling to recover.
“The slowdown in domestic economic growth and uncertainty in the international economy considerably impacted domestic consumers’ confidence in the short term,” Chief Executive Officer Bruno Robert Mercier said.
“In the second half of 2012, the group will continue to press ahead with the opening of new stores as planned, while developing resources for further new stores in the future.”
Sun Art, a joint venture between Taiwan conglomerate Ruentex Group and privately held French retailer Groupe Auchan SA , said first-half net profit was 1.37 billion yuan (US$215.52 million), up from 784 million yuan a year earlier.
That was higher than two analysts’ forecasts of 1.1 billion yuan and 1.28 billion yuan.
Turnover for the company, which competes with foreign operators Wal-Mart Stores, France’s Carrefour and Britain’s Tesco, stood at 39.4 billion yuan, up from 34.5 billion yuan in the same period of 2011.
Same-store sales growth was 4.3 per cent in the first half.
Sun Art had said it expected same-store sales growth of its retail stores to slow for 2012 from the previous year’s growth of 8.8 per cent, which was already down from 11.4 per cent a year earlier.
Its gross profit margin rose to 20.5 per cent for the six months, up from 19.9 per cent a year earlier, reflecting economies of scale as it expanded its business operations.
Inventory turnover days rose to 48 during the first half, up from about 40 days a year earlier.
Sun Art, which raised US$1.1 billion in a Hong Kong initial public offering last July, said it would identify new sites for hypermarkets this year and expand further into smaller Chinese cities as they become more affluent.
It opened 10 new hypermarkets during the first half, bringing its total to 240 hypermarkets in mainland China. It provided no details on market share.
Sun Art operated 230 hypermarkets across China under the Auchan and RT-Mart banners at the end of 2011, accounting for a 12.8 per cent market share, it said in a previous results presentation, citing estimates from Euromonitor.
Wal-Mart Stores ranked second in the hypermarkets segment with 11.2 per cent of the market, followed by China Resources Enterprise with 10.1 per cent and Carrefour with 8.1 per cent.
Ruentex Group and its units Ruentex Industries and Ruentex Development, own stakes in Sun Art.
Shares of Sun Art have dropped 2 per cent so far this year, lagging an 8 percent gain in the benchmark Heng Seng Index , but outpacing a 13 percent drop in shares of domestic rival China Resources Enterprise.