China's Gome first-half profit jumps 153pc as it pins hopes on online shop

Electrical appliance chain says first-half profit rose 153 per cent as inventory turnover decreased to 56 days and store numbers rise to 1,073

PUBLISHED : Wednesday, 28 August, 2013, 12:00am
UPDATED : Wednesday, 28 August, 2013, 4:47am

Mainland home appliance retailer Gome Electrical Appliances said its first-half profit rose 153 per cent year on year to 322 million yuan and that its online business would turn profitable next year.

Sales hit 27.1 billion yuan (HK$34.3 billion) in the period, up 10.2 per cent year on year. About 5 percentage points of that stemmed from its e-commerce business, chief financial officer Fang Wei said, emphasising that the company was focused on profitability and not sales volume.

Gome's online business has yet to turn a profit. In the first half, it lost 120 million yuan, with about 40 per cent of that shouldered by its joint venture partner. The company is pinning its hopes for long-term profitability on its e-commerce business.

"Maintaining mid to high-single-digit growth in gross profit margin for the e-commerce segment should not be a problem," Fang said.

President Wang Junzhou said that prices in the company's bricks-and-mortar shops would be different from those in the online store, in order to remain competitive. "Having the same prices for online and physical stores is not a good strategy," he said. "We have to be competitive in both."

Inventory turnover decreased by 18 days from the same period last year to 56. Consolidated gross profit margin rose to 18.3 per cent from 16.9 per cent.

"The future holds more competition as far as we can see," Wang said. "We have experience in pricing competitions and have thrived in them. Low prices basically mean low procurement costs and logistics. We have the full capabilities to compete."

The home appliance market on the mainland is estimated to be worth 1.455 trillion yuan and is forecast to grow to 2.023 trillion yuan over the next three years.

Wang said he was not worried that a plan to improve national energy efficiency standards would impact the business.

"I think this is overall a good thing … A revision in energy standards would mean people would buy new appliances," he said.

Same-store revenue growth jumped 15.1 per cent year on year.

In the first half, Gome opened 35 stores and closed 70, bringing its total number of outlets to 1,073, spread across 250 mainland cities. Fang said that the company planned to reduce the number of stores in first-tier cities by about 30 over the remainder of the year while increasing the size of remaining first-tier stores and increasing its presence in second-tier cities.

"Overall, the net number of stores should remain stable," Fang said. The company said it expected to open shops in 30 to 50 new cities by 2016.

Shares of Gome rose 2.6 per cent to 79 HK cents per share yesterday. The Hang Seng Index fell 0.59 per cent.