Giordano sees lower rents in store for Hong Kong

Company says sales up in first half but gross margin fell as firm cleared excess stock across the country

PUBLISHED : Thursday, 16 August, 2012, 12:00am
UPDATED : Thursday, 16 August, 2012, 1:12pm

Casual wear chain Giordano International expects rents in Hong Kong to soften due to a slowdown in retailing, after the company reported a better-than-expected 1.7 per cent growth in interim net profit.

Giordano shares rose 5.2 per cent to HK$5.64 yesterday after the Hong Kong-based clothing retailer said the net profit for the six months to June rose to HK$352 million from HK$346 million a year earlier. It added that the net profit excluding earnings from two one-off asset disposals actually fell 11 per cent for the period.

Sales increased 1.8 per cent to HK$2.698 billion during the period. Gross margin fell by 1.7 percentage points to 58 per cent. The company attributed the relatively low sales growth to a high base a year ago, while the extensive stock clearance across the country was cited as the main reason dragging down the gross margin.

Peter Lau Kwok-kuen, chairman and chief executive of Giordano, said he expected the gross margin to rebound in the second half thanks to improved inventory levels following the stock clearance.

He said rents in Hong Kong were still too high considering the slowdown of the local retail market in the first half.

"We have no intention of adding new shops [in Hong Kong] since the rent level is still high for the moment," Lau said. "We would consider further expansion when the rent really falls."

Meanwhile, the company will also moderate its pace of expansion on the mainland and close some of the shops with marginal profitability.

The company said mainland sales fell 4 per cent in the first half, compared with a 3 per cent sales rise in Hong Kong and Taiwan. Sales in other areas, such as Singapore, Malaysia, Indonesia and Thailand, grew 4 per cent from a year earlier.

"Looking ahead, the mainland remains the key market for the group's growth strategy and we will expand our operations there as market demand starts to recover," he said.

By the end of June, Giordano ran a total of 2,723 outlets globally, 52 shops more than a year earlier.

Lau said the company had taken various measures to save costs and improve efficiency, and was confident of delivering steady profit growth in the future.

Giordano proposed an interim dividend of 15 HK cents per share for the reporting period.