Reporting a 5.6% rise in first half net profits, China’s top retail chain indicated that it is considering selling its stake in a joint venture with Carrefour so that it can focus on adding hypermarkets to its industry-leading chain.
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Lianhua reported first half profits of CNY138.4m (US$17.35m), up from CNY131m for the first half of last year. Revenues for the half totalled CNY8.35bn, up from CNY6.98bn posted last year.
Gross profit margins for hypermarkets rose to 8.8%, from 8.5% last year, while margins at the retailer’s supermarket unit increased to 14.6% from 13.9%.
Reporting its results, the company noted that it had adjusted its business strategy to better reflect the increasingly competitive retail arena that has developed in China since the market opened to foreign retailers in 2005.
In the results release, Lianhua said: “The increasingly competitive environment required retailers to better enhance their operating ability. In the first half of 2006, the group proactively adjusted the competitive strategy and made adjustment and reform in every aspect of the business operation, which resulted in improvement in the group’s operating ability.”
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By GlobalDataExecutive director Liang Wei said in a conference call that the company might benefit in the long term from Beijing’s effort to curb uncontrolled expansion in the market.
The Commerce Ministry has drafted regulations to govern the expansion of retail stores, but details are yet to be revealed.
Lianhua said that it plans to invest CNY400m in the second half of the year, opening as many as 300 new supermarkets and hypermarkets.
Liang continued that it is currently considering the sale of its 45% stake in the lossmaking Shanghai Dia-Lianhua Retail Co to its current partner Carrefour.
“The discount store model has been very successful in Europe but the benefits have not yet been seen on the mainland,” he commented.
