CHINA: Profits slump at retailer Lianhua
Chinese retailer Lianhua Supermarket Holdings has booked a slump in annual profits despite a return to growing same-store sales.
Lianhua, listed in Hong Kong, said it had spent 2013 making "active efforts in business transformation and upgrade" in response to three factors - "the ever-increasing fierce market competition, constant rising costs and changing structure of demand".
The retailer, which has over 4,500 stores in China, booked net profit of CNY53m (US$8.6m), down sharply from the CNY339.9m it recorded for 2012.
Operating profit amounted to "approximately" CNY270m, Lianhua said, representing a decrease of 48.1% over 2012.
Gross profit was up 11% at CNY4.36bn, with gross profit margin of 14.36%, an increase of 0.81 points on a year earlier.
However, higher selling, distribution and administrative expenses - and a jump in "other operating expenses" weighed on Lianhua's bottom line.
Lianhua did not immediately respond to requests for comment on these operating expenses. However, in its results announcement on Wednesday (26 March), the retailer cited initiatives it had undertaken to "transform" its business last year.
The company said it had "improved" the quality of its outlets, which led to the closure of 168 stores and revised its strategy for opening new stores. In 2013, Lianhua opened three hypermarkets, 153 supermarkets and 156 convenience stores.
Hypermarkets still account for 60% of Lianhua's turnover but the sales growth from the format was lower last year than from the retailer's supermarkets and c-stores.
"It's increasingly clear that the hypermarkets are facing considerable competitive pressure from specialty stores and shopping malls due to the slowdown in the growth of chain supermarket business in China’s first and second tier cities along with the lax implementation of the ban on commercial outlet construction in the past," Lianhua said.
The retailer's other programmes last year included looking at areas including price and promotions, product mix and supplier base.
Turnover amounted to CNY30.38bn, an increase of 4.8% year on year. Same-store sales increased by 2.1%. In 2012, Lianhua's same-store sales fell 0.7%.
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