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Hong Kong company reporting season

Sogo operator Lifestyle International reports 49.9 per cent profit decline amid sluggish retail market

PUBLISHED : Monday, 15 August, 2016, 1:26pm
UPDATED : Monday, 15 August, 2016, 11:05pm

Sogo department store operator Lifestyle International has seen Hong Kong’s retail sector hit rock bottom over the past several months but doesn’t believe a substantial rebound is around the corner, said its chief executive Thomas Lau Luen-hung.

“For the coming second half, people will be eyeing the more important fourth quarter retail sales figures, particularly those for November and December,” Lau told a press briefing on Monday.

“The city’s retail sector is hovering close to its lowest level, while there remains a question mark over whether a turnaround will take place very soon.”

The Hong Kong retail giant reported a smaller-than-expected net profit decline of 49.9 per cent from a year earlier as its popular Hong Kong shopping destinations were hit hard by lukewarm domestic demand and dwindling tourist numbers.

Net profit slumped to HK$587 million for the first six months of the year from HK$1.17 billion for the same period last year, according to a statement by the company, which in July had spun off all of its mainland Chinese businesses including the upscale Jiuguang shopping malls in Shanghai.

Sogo is seen as a must-go destination for mainland tourists visiting Hong Kong. Analysts polled by Bloomberg had projected an average net profit of only HK$393 million.

Excluding its mainland operations, turnover dropped 3 per cent to HK$2.28 billion for the first half from a year earlier.

The gloomy earnings report was the latest signal that shoppers are pulling back on purchases of mid-to-high-end discretionary goods such as apparel, with sluggish demand both at home and across the border in a sputtering economy.

“The near-term outlook for the retail sector is still uncertain, as it takes longer for the global economy to recover from lingering uncertainties and dwindling consumer sentiment,” said Lau, who is the brother of billionaire tycoon Joseph Lau Luen-hung.

Prior to the announcement GF Securities analyst Albert Yip said: “Although we may see minimal signs of recovery in sales of small ticket items like cosmetics partly driven by a low base effect, the upper end retail sales in Hong Kong are still going to be struggling for a while.”

The company said in early August its investments for the first half suffered from a steep loss of about HK$186 million, versus a gain of HK$256 million over the same period last year.

Lifestyle shares settled at HK$10.86 by close of trading on Monday, up 0.55 per cent. The shares have risen 25 per cent in the past six months.

The company maintained its interim dividend at 28.9 HK cents per share.

In July, Lifestyle completed a separate public listing of Lifestyle China which comprises all of its mainland Chinese businesses, making the stock a pure Hong Kong retail play free from intense competition across the border.

Sales slid 9.5 per cent at Sogo’s Causeway Bay store, which accounted for 63.7 per cent of the company’s total sales. The department store operator blamed the drop partly on the lower stay-and-buy ratio during store renovations.

The company’s move in July to seek up to HK$8 billion through debt also triggered market concerns over its rising financing costs.

However, ratings agency Fitch expects Lifestyle’s business to remain resilient compared with other Hong Kong retailers, driven by the prime location of its stores, smaller rental expenses, and a high exposure to the local market.

Hong Kong retail sales plunged 10.5 per cent in the first half of this year – the worst drop in 17 years, while the city saw a marginal 5.3 per cent pick-up in July visitor numbers.