Bloomberg News

Gome Profit Falls as Costs Hurt China Electronics Retailer

March 27, 2012

Gome Electrical Appliances Holding Ltd. (493)’s 2011 profit fell 6 percent, missing analyst estimates as higher costs weighed on China’s second-biggest electronics retailer.

Net income dropped to 1.84 billion yuan ($292 million) last year, compared with 1.96 billion yuan a year earlier, Beijing- based Gome said in a statement to Hong Kong’s stock exchange today. The mean estimate of 10 analysts surveyed by Bloomberg was 2.42 billion yuan.

Gome is expanding to challenge larger rival Suning Appliance Co. in China, where retail sales expanded 15 percent in the first two months in 2012, slowing from an 18 percent increase in December. The board didn’t recommend the payment of a final dividend to preserve capital, Gome said today.

“We are still at an early stage in developing our e- commerce business,” said Fang Wei, Gome’s chief financial officer, at a press conference today. “We’ll continue to invest quite substantially into the project. The initial investment may drag down our margins in the short term.”

Gome opened 282 new stores and closed 29 underperforming outlets last year, according to the statement. Network expansion and development of e-commerce pushed up selling and distribution costs, the company said. Sales at stores open at least a year rose 3.1 percent. The company plans to add 250 to 260 stores this year, Fang said.

The retailer, 9.9 percent owned by U.S. private equity fund Bain Capital LLC, said sales grew 17.5 percent to 59.8 billion yuan and the cost of sales surged to 52 billion yuan from 45 billion yuan. Gome’s inventories amounted to about 9.6 billion yuan at the end of 2011, up 19 from a year earlier.

Suning earned 4.82 billion yuan last year on revenue of 93.9 billion yuan, according to a preliminary earnings statement to the Shenzhen Stock Exchange.

Industry sales may pick up if the government restores subsidies to consumers for the purchase of home appliances after an earlier program giving shoppers as much as 400 yuan ended Dec. 31.

Gome climbed 3 percent to HK$2.08 in Hong Kong before the earnings announcement.

To contact Bloomberg News staff for this story: Michael Wei in Shanghai at mwei13@bloomberg.net; Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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