35pc profit rise has Sa Sa glowing - for now

Cosmetic retailing group Sa Sa International Holdings, which reported a 35 per cent year-on-year rise in net profit for the 12 months ended March, expected sales growth to slow this year because of the global economic downturn.

Net profit climbed to HK$689.7 million from HK$509.3 million a year earlier.

The group's turnover rose 30.7 per cent to HK$6,405 million, driven by core markets in Hong Kong and Macau. Earnings per share increased 6.4 HK cents to 24.6 cents, and the total annual dividend per share is 17.5 cents.

Sales at Sa Sa increased 15 per cent year-on-year in the three months ended June, down from a 26 per cent increase in the six months ended March and 34.8 per cent growth in the previous six months ended September.

Tourist numbers grew 14.4 per cent in April from a year earlier in Hong Kong, the slowest increase in 14 months. Mainland tourists account for 64 per cent of sales at Sa Sa's Hong Kong and Macau stores.

Same-store sales at Sa Sa increased 12.4 per cent in the three months ended June, compared with 20.9 per cent growth in the six months ended March.

The company attributed the slower growth to the higher base last year.

'We will expand our network very cautiously this year due to the current economy and the soaring rental costs in the city,' said Simon Kwok Siu-ming, chairman and chief executive of Sa Sa, at the results announcement yesterday.

Lease agreements for 23 of its stores in Hong Kong are due for renewal this year. Of the 13 that have already been renewed, rent has gone up by 23 per cent, Kwok said. These stores are located in suburban areas, which are visited by fewer tourists. But Kwok expected the company's stores in prime locations would face rent rises of two to three times that rate.

Last year, the retailer closed 11 stores in Hong Kong and Macau because of an 'unreasonable increase in rent', he said.

The company closed down two stores in Kai Chiu Road, Causeway Bay, in January after the landlord tried to triple the rent to more than HK$4 million a year. The site was taken over by a jewellery chain store.

'The increase in rents doesn't matter. What matters more is whether the store can make money,' said Kwok.

As at the end of March, the company operated 227 stores in Hong Kong, Macau, mainland China, Singapore, Malaysia and Taiwan - up by 46 from the previous fiscal year.

Shares in Sa Sa rose 2.19 per cent to HK$4.2 yesterday.