Gome issues profit warning, forecasting 2012 net loss

Hong Kong-traded Gome Electrical Appliances Holding Ltd, China's leading electronics chain retailer by revenue, issued a profit warning on Monday as it forecast a net loss in 2012.

In a filing to the Hong Kong Stock Exchange, Gome attributed the potential loss to declining revenue, soaring rental expenses and losses incurred by its e-commerce business. It did not specify the range of the loss.

Gome cited the slowing Chinese economy, the termination of economic stimulus policies, a lack of consumer confidence as well as its online business being in its infancy as key reasons for the lackluster performance.

Bank of America Merrill Lynch, the corporate and investment banking division of Bank of America Corp, said the warning comes as no surprise, with Gome recording a 687 million yuan ($110 million) loss in the first nine months of 2012. It predicts a meager profit rise in the fourth quarter, due to cost control and a reconstruction of Gome's online business.

Citi Investment Research stood by its “buy” rating on Gome, saying the company will level off by next year. Gome has integrated two online portals, Gome Online and Coo8, a move which Citi believes is set to effectively raise gross margin.

On Jan 20, Gome said it will leave the Hong Kong retail market by closing six outlets from Friday. The company is also reshuffling personnel at online business units.

Gome's shares staged a modest rally on Tuesday, gaining 1.05 percent to HK$0.96 (0.78 yuan) as of 3:30 pm. The company is expected to publish its 2012 annual report no later than March 31.