GOME sees online sales driving profitability

Reuters News
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Posted: Aug 31, 2012 8:21 AM
GOME sees online sales driving profitability

By Donny Kwok

HONG KONG (Reuters) - GOME Electrical Appliances, China's No. 2 home appliance chain, said profitability should improve thanks to lower costs and a likely pick-up in its online business, when reporting an expected first-half loss.

"Since most of our investment in e-commerce has been made, the situation will improve in the second half," chief financial officer Victor Fang told reporters on Friday.

China's major appliance retailers have launched an online price war in a battle for market share as sales of household goods and electronic products are being hit by what could be the country's slowest economic growth since 1999.

GOME, backed by private equity firm Bain Capital and which issued a profit warning in July, posted a 501 million yuan ($79 million) first-half loss, hit by costs at its online business and the end of government subsidies on home appliances. It made a 1.25 billion yuan profit in the 2011 period.

"With improvement in profit margin and costs trending down, in particular in logistics following restructuring, performance in the second half is set to be better," Fang said.

GOME, which competes with bigger rival Suning Appliance - seen by some as China's answer to Best Buy, logged a 260-270 million yuan first-half loss for its online business.

The company, which opened 62 new stores and closed 45 underperforming sites to have 1,096 locations as of end-June, said it aimed to expand its retail network in second and third-tier cities, raise efficiency in first-tier cities and close stores that misses targets.

GOME shares have lost 62 percent of their value this year, with the benchmark Hang Seng Index up 5.7 percent.

In July, Suning Appliance posted a 29.5 percent fall in first half-net profit to 1.74 billion yuan as a slowing economy hit store sales.

China's economic growth has been slowing for six quarters, leading scores of companies to report or flag weak earnings and unnerving investors concerned that the world's second-largest economy is struggling to recover. With demand slowing, China's July retail sales growth eased to a 17-month low.

($1 = 6.3496 yuan)

(Editing by Anne Marie Roantree and Dan Lalor)