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Giordano earnings up 35pc

BOOMING sales pushed Giordano Holdings' after-tax profit up 35.2 per cent to $115.1 million last year, but its China operations - widely considered lucrative - incurred losses.

Contrary to most expectations, the casual-wear retailer's mainland business turned in losses of $10.4 million due to high start-up costs and a short operating period.

The company's profit for 1992 was below the average forecast of $118 million, according to The Estimate Directory.

Turnover was $1.66 billion, up 42 per cent from $1.17 billion in 1991.

Earnings per share were 19 cents, up from 15.8 cents.

Directors recommended a final dividend of 2.5 cents a share, taking the year's total to 7.5 cents.

Chief executive Brian Lee Kwok-cheung said the company had benefited from continued growth in its major markets, Hongkong, Singapore and Taiwan.

Taiwan sales increased by 74 per cent, Singapore sales 36 per cent, and Hongkong 20 per cent.

But the company's China retailing business, which operates through its 20 per cent-owed associate Tiger Enterprises, suffered losses of $10.3 million.

The remaining 80 per cent in Tiger is held by Giordano chairman Jimmy Lai Chee-ying.

Mr Lee attributed the losses to Tiger's huge start-up costs and overheads, inappropriate pricing strategy, and the sharp fall in the value of yuan.

Giordano took Guangdong by storm when the first outlet was opened in September. Long queues formed in front of its shops.

With the current four stores in Guangdong generating monthly sales of about 25 million yuan (about HK$33.7 million at official rates), there are no doubts over the future of the business.

But Mr Lee said: ''Sales are important, but profit margins are equally so.'' He insisted that the outlook for mainland retailing was encouraging, but said a start-up entailed risks.

''China is a new market to us, and we're seeking to get things done in the right way,'' he said.

The company has not taken up the option of increasing its shareholding in Tiger from 20 per cent to 51 per cent.

''We'll exercise the option when Tiger operates to the level whereby we feel comfortable with its profits,'' Mr Lee said.

The company plans to open its fifth mainland outlet in Dongguan, Guangdong, next month, and aims to open six to 10 shops in China this year.

Optimism about the company's exposure to the China consumer market prompted a rise in its share price from $2.404 in January 1992 to a record $4.85 in the fourth quarter.

The stock reached another record high to $6.70 early this year. However, the shares are now on a relatively high prospective 1993 price-earnings ratio of 24.

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