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Gome expects better full-year profit

By Wang Xiaotian (China Daily)
Updated: 2009-11-19 08:07

Gome Electrical Appliances Holdings Ltd yesterday said it expects to come in with better full year numbers and open more outlets next year, as the electronics retailer continued to benefit from its store restructuring plan and various other cost control measures.

Speaking to newsmen Chen Xiao, president of Gome, said revenue during the third quarter of the year rose 2.85 percent to 10.97 billion yuan ($1.61 billion) compared with 10.66 billion yuan in the previous quarter. Net profit for the period was 385 million yuan.

The company said revenue for the nine months ending Sept 30 rose 13.64 percent to 31.43 billion yuan over the same period last year. Net profit, however, fell in the nine months by 39 percent to 965 million yuan from a year ago.

"Our decision to optimize the store network has paid off," said Chen.

Denying claims that the company's sales recovery was aided by the government's subsidy program for appliances, Chen said it accounted for just 10 to 15 percent of the total sales.

During the nine-month period, the company closed down 158 less profitable outlets and opened 41 new stores to improve its operational efficiency.

The average earnings of a single outlet in the third quarter rose 2.05 percent year-on-year to 14.4 million yuan, the first growth since the fourth quarter of 2008, the company said.

However, Liang Ying, an analyst from China Merchants Securities, said the company's performance is actually lower than expectations.

"Earnings from convertible bonds contributed to a big part of the earnings," Liang said. She said fees collected from suppliers have been declining and could have a negative impact on future earnings.

The company had earlier reported a half-year net profit of 258 million yuan, down 59 percent over the same period last year. Revenue during the period fell 18 percent to 20.5 billion yuan.

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Chen said the company has managed to come out of the woods as net profit for the January-June period jumped nearly 66.67 percent from the July-December period in 2008. He said the first half numbers were slightly impacted due to the higher provisions it had to set aside for store restructuring.

Lu Renbo, an analyst from Research Institute of Market Economy, the State Council, said the company has improved its performance with better management and outlet optimization. "What the retailer needs to do now is to revamp the products at its outlets," he said.

"The existing line of products offer little margins for Gome. It needs to be more creative and rejig its product line up with higher margin products. Although Gome's products and categories per sq m is still the highest in the country it still is not on a par with international standards," he said.

Gome was founded by Huang Guangyu in Beijing in 1987. The company was listed on the Hong Kong Stock Exchange in 2004. In November 2008, the bourse suspended trading in Gome shares after police revealed that Huang was under investigation for stock manipulation.

Gome resumed trading in June and announced a financing plan of HK$3.23 billion and also augmented capital several times.