A WET summer poured cold water on Cafe de Coral Holdings, already squeezed in a crowded market, resulting in a 28 per cent fall in interim profits which disappointed analysts. Cafe de Coral yesterday reported profit attributable to shareholders of $56.51 million, from $78.68 million in the corresponding period last year, despite a 15 per cent rise in turnover to $964.67 million. It said earnings per share were 10.84 cents, down from 15.31 cents previously, and it would pay an unchanged dividend of 3.5 cents a share. The company's chairman, Lo Kai-muk, said the retail industry and the restaurant sector in particular had suffered a decline in demand over the past six months because of bad weather. 'Severe rainstorms throughout the summer months have reduced both the frequency and the number of people dining out in this otherwise normally peak season,' Mr Lo said. This affected the downturn, and group turnover and operating results were below management's expectations. He said the company remained committed to developing its operations in China, where austerity measures had not affected operations as significantly as originally expected. Cafe de Coral was cutting costs by shrinking branches, closing unprofitable outlets, renegotiating leases and changing existing restaurants, he said. 'It is believed such plans should bear fruit in the upcoming years in achieving productivity gains and reducing operating costs,' Mr Lo said. But analysts said they were disappointed both by the profit fall and expressed scepticism at the scope for growth in earnings in a crowded market. 'If you look at business competition in Hong Kong itself, there's only so many mouths to feed,' said one. They said they were disappointed that the management had failed to signal the full extent of the expected fall in profits. Nomura Research Institute's Gordon Crosbie-Walsh conceded that the wet weather was a factor in the worse-than-expected results, but said other factors were also involved. Turnover was up, he said, but said costs also appeared to be going up in a crowded high-volume, low-margin sector of the market. 'The market is close to saturated in Hong Kong now,' Mr Crosbie-Walsh said. 'I think that by 1996 it will be saturated.' Another analyst who declined to be named said: 'We put a sell on it two years ago and we stopped following it about one year ago.' Salomon Brothers' Kent Chan said he had been bearish, but was still surprised at the extent of the fall. 'They were down more than we were looking for,' he said. 'We were looking for profit attributable [to shareholders] falling by 14 per cent, so it's actually much worse.' Sales were up but profits were suffering 'much more than my original expectations which were probably the most bearish in the market', said Mr Chan.
