Hong Kong fashion group I.T back in the black on strong sales in Japan, China

PUBLISHED : Tuesday, 25 October, 2016, 7:58pm
UPDATED : Wednesday, 26 October, 2016, 1:21pm

Hong Kong fashion group I.T reversed its fortunes in the first half of its financial year, buoyed by strong sales in Japan and mainland China, riding a trend not enjoyed by its local peers amid the Hong Kong retail slump.

The apparel retailer recorded a net profit of HK$39.1 million in the six months ended August 31 compared with a net loss of HK$31 million in the same period a year earlier.

Sales rose 7.4 per cent to HK$3.64 billion during the first half period.

The earnings turnaround shrugged off the bleak local retail outlook troubling other players in the city, as the fashion house boosted its appeal among young Chinese consumers increasingly keen on cool and niche brand names.

“Difficult operating conditions and weakness in consumer appetite are likely to remain the themes across the group’s principal regions, particularly in the Hong Kong segment,” said Sham Kar-wai, chairman of the company. “Nevertheless, [our] multifaceted business model along with diversified regional exposure will retain its resilience in difficult times.”

Unlike its Hong Kong competitors Esprit, Giordano or Bossini, I.T started as a distributor and retailer of “hard to find labels”, targeting young people as far back as the late 1980s. Its outlets sell dozens of mid-to-high end labels such as French Connection, A Bathing Ape and Kurt Geiger, while it has a team of buyers who determine what new brands and lines the stores will carry.

Mainland China, where I.T opened 80 stores during its 2015 financial year, delivered year-on-year revenue growth of 14 per cent to HK$1.52 billion in the first half. Its Japanese business was also a star performer, posting HK$326.7 million in sales, a year-on-year rise of 46.9 per cent.

The company is still facing rental pressure as most of its shops are in shopping malls where the rental ratios are still sticky
Mariana Kou, CLSA analyst

“We expect to extend our footprint to second tier [mainland] cities,” said Kenny Chan, executive director of I.T.

Rather than chasing big name fashion logos, Chinese millennials are now setting their sights on lesser known but exclusive names, providing a window for top Hong Kong outlets to gain a foothold in the world’s second largest economy.

The company has 395 stores across 22 Chinese cities such as Beijing, Shanghai, Hangzhou and Chengdu. But I.T’s business in Hong Kong is still under pressure, with marginal 0.9 per cent same store sales decline for the first half, and analysts say rents are still likely to weigh down its bottom line.

“The company is still facing rental pressure as most of its shops are in shopping malls where the rental ratios are still sticky,” said CLSA analyst Mariana Kou, who upgraded the stock to “Buy” in September. “We expect the company to remain loss-making in Hong Kong this year.”

Separately, luxury department store Lane Crawford, featuring designer brands such as Alexander McQueen, Givenchy and Lanvin, has also expanded rapidly into China’s first and second tier cities.