Lifestyle International saw its net profit growth slow to 12.7 per cent in the first half of the year in light of setbacks at its mainland operations amid fierce competition and a softening in the economy.
The operator of Hong Kong's Sogo department store and the mainland's Jiuguang department store saw its net profit increase to HK$909.9 million in the six months to June but growth was slashed from 30 per cent in the same period last year. Sales grew 10 per cent to HK$2.6 billion.
Besides the downward growth trend, the termination of the lease for Sogo's Tsim Sha Tsui store in 2014 is another overhang on the retailer.
'There would be some influence on our profit but the impact would not be as big as people expected,' said Thomas Lau Luen-hung, managing director of the retailer. Lau said the company aimed to find another location in Kowloon for the store but admitted it was not easy to find another prime site with such a sizable floor area. The 10,000 square metre Tsim Sha Tsui store accounted for less than 5 per cent of the group's net profit last year.
The profit growth for 2012 is bleaker than last year due to the slowdown in the mainland economy. After the sluggish sales growth in May and June, the company said sales had shown signs of bottoming out in late July and early August. 'But a significant rebound is not likely in the second half of the year,' said Lau. 'The business in Hong Kong will be more resilient than on the mainland, which is suffering from fierce competition.'
The group's chief financial officer Terry Poon Fuk-chuen said the department store in Shanghai suffered a 2.9 per cent year-on-year decline in sales in the first half while the Dalian store saw sales drop 7 per cent. Sales at the Suzhou store grew 21 per cent, slowing from 61 per cent a year earlier.
Increased competition on its home turf is also looming as Hysan Development's Hysan Place, an iconic shopping mall in Causeway Bay, will be opened on Friday. Analysts forecast it would attract 100,000 in daily traffic when it was in full operation. But Lau said this was not a zero-sum game among different operators in Causeway Bay and the new shopping mall could draw more traffic to the area. Sogo will also offer some promotions to capitalise on the increased traffic flow.
On the mainland, two new projects are in the pipeline. A Shenyang department store will be launched next year while a new store in Shanghai will be completed in 2016. To fund the expansion, the company has raised US$500 million through bonds in March. Its bank loans and bonds increased to HK$8.45 billion from HK$6.6 billion.
Earnings per share at Lifestyle grew to 54.6 Hong Kong cents from 48.1 cents a year earlier and the board declared a 21.8 cent dividend.
The company said it would maintain the dividend payout ratio of 40 per cent and had no imminent plan for fund-raising.
Shares in Lifestyle rose 1.6 per cent to HK$17.58 yesterday.