Slowing China demand eats into Giordano profit

Casual-wear retailer pins growth hopes on the Middle East and other emerging markets

PUBLISHED : Tuesday, 13 August, 2013, 12:15pm
UPDATED : Wednesday, 14 August, 2013, 1:44am

Casual-wear retailer Giordano International said first-half net profit dropped 3 per cent as sales slowed, hit by softening demand on the mainland, its key market.

The company posted a net profit of HK$340 million in the January-June period, roughly in line with the consensus forecast of HK$348.5 million compiled by Bloomberg. It reported a HK$352 million net profit a year earlier.

"In the first half of 2013, we continued to see challenging market conditions across our global operations. Volatility in consumer demand has been significant in mainland China, Taiwan and Singapore and this has affected our sales," chairman Peter Lau Kwok-kuen said.

"Competition continues to be intense as international brands enter our major markets, putting pressure on costs. At the same time, local competitors are continuing to hold high inventory levels and cut prices."

Lau said the company was addressing sluggish mainland sales by developing fewer but stronger partnerships with authorised dealers, continuing store refurbishments to upgrade ambience and expanding on its womenswear, separate from the Giordano Ladies brand. It closed 64 outlets on the mainland this year.

The Hong Kong stores saw a modest gross profit increase of 3 per cent despite continued rental pressures while Taiwan suffered a 5 per cent decline, in line with a slowdown in its overall economy.

Giordano has been stepping up investments in the Middle East in the hopes that the region can partly offset the impact of weak sales in mainland China, where economic growth has slowed significantly in recent years. Last year, it acquired a controlling interest in its Middle East franchise operations.

The firm is also counting on strong sales in emerging markets such as Thailand, Malaysia and Indonesia, where growth is as much as 20 per cent annually, to boost the bottom line.

An analyst who declined to be named said inventory levels were high though they remained in a healthy range.

Giordano reported inventory at HK$518 million, a rise of HK$143 million from last year due to the consolidation of inventory in the Middle East.

Although comparable-store sales for the Middle East were down 14 per cent, numbers could pick up, said the analyst, if the political situation stabilised.

Turnover grew 5 per cent to HK$2.84 billion.

It declared an interim dividend of 16 HK cents, up from 15 HK cents the previous year.

Shares of Giordano fell 0.25 per cent yesterday to HK$7.87.

The company's major shareholders include Cheng Yu-tung and Aberdeen Asset Management.