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Hong Kong company reporting season

Chinese appliance giant Gome reports 82pc plunge in interim profit amid shift to online shopping

PUBLISHED : Monday, 29 August, 2016, 9:12pm
UPDATED : Monday, 29 August, 2016, 10:56pm

Gome Electrical Appliances Holding, China’s largest household appliances retailer, posted an 82 per cent plunge in net profit for the first half of the year as it scrambled to renovate dozens of stores aspart of an overhaul to prop up struggling sales.

Net income for the first six months of the year slumped to 124 million yuan from 687 million yuan in the year-earlier period, dragged down by escalating selling and distribution expenses that hit 4.49 billion yuan, as well as a near quadrupling of financing costs to 105.50 million yuan.

The Beijing-based operator of more than 1,000 stores, controlled by the family of jailed billionaire tycoon and once the country’s richest man Wong Kwong-yu, is the latest bricks-and-mortar player to grapple with Chinese consumers’ shift to e-commerce and the effects of a lingering economic slowdown.

“The group is intending to organically merge its online and offline traffic attraction portals, cover a wider range of retail consumers while cultivating the consumption patterns of younger generation consumers, which eventually drive sales growth with growing customer traffic,”Gome chairman Zhang Dazhong said in a statement.

“Large stores in first-tier markets have been transformed on a great scale after the traffic-based concept of ‘Stores Offering New Scenario Experience’ had been implemented,” he added.

The group is intending to organically merge its online and offline traffic attraction portals... while cultivating the consumption patterns of younger generation consumers
Zhang Dazhong, Gome chairman

Sales revenue for the first half rose 11 per cent to 35.31 billion yuan from 31.69 billion yuan a year earlier, while the company blamed a 9.93 per cent decline in comparable store sales on renovation work taking place at dozens of its outlets in first-tier cities such as Beijing, as well as robust growth in its e-commerce operations.

Although achieving a 21.67 per cent year-on-year increase in online-to-offline gross merchandise volume for the first half, with a more than doubling of its e-commerce business, Gome has lagged behind its longtime rival Suning in transforming to an online goods seller.

The Nanjing-based electrical appliance powerhouse was among the first to launch an online marketplace in 2013, with its first e-commerce deal signed as early as 2011.

Official figures indicate sales of the top 100 home appliances retailers in China have contracted 4 to 5 per cent in the first half of the year.

Wong is serving a 14-year jail sentence in Beijing for insider trading and bribery, but he and his family still have control of the company as the largest shareholders. Wong cut his stake in the company on July 27, only days before Gome issued a profit warning in Hong Kong.

Gome shares closed on Monday little changed at HK$0.92. The stock has fallen 25 per cent over the last 12 months.