Analysts forecast harder times ahead as Sars takes its toll on fashion distribution China Resources Enterprises (CRE) managed to lift net profit 1.18 per cent to $298.47 million in the first quarter to March, but its retail operation slipped into the red as competition intensified in Hong Kong and the mainland. The worst may be yet to come for the company, with analysts predicting its second-quarter profit will fall year on year due to the effect of Sars on its fashion brand distribution in the mainland and its Hong Kong department stores. CRE said its retail division - including supermarkets, fashion distribution and department stores - posted a first-quarter net loss before interest and expenses of $15.8 million, compared with a $23.2 million profit last year. In the face of keen competition, especially in southern China, the red-chip conglomerate decided to introduce cost controls and slow the expansion pace of its supermarket network, according to analysts. They said that the firm now planned to open 30 to 40 outlets this year, compared with an earlier target of 70. Last month, CRE unveiled plans to lay off up to 3,000 staff at its supermarkets and hypermarkets in Hong Kong and the mainland this year to cut costs. The company's fashion brand distribution business posted a first-quarter net loss before interest and expenses of $3.3 million. As of March, the group said it had acquired 18 brands, marketed through 763 self-operated and franchised boutiques in designated mainland cities. CRE's textile and petroleum operations posted strong results in the quarter. The textile business reported a net profit of $35.8 million, compared with $7.99 million in the same quarter last year, while profit at its petroleum operation rose 32.4 per cent to $89.21 million. Losses at the beverage division widened to $15.8 million from $102,000 due to new acquisitions. Analysts said the petroleum division was unlikely to see the same profit growth in the second quarter in the light of declining oil prices. The textile operation has seen slower growth in new orders since last month, with buyers unwilling to visit China due to the Sars outbreak.