Profits rise for retailer Gome

Electronics retailer Gome Electrical Appliance Holding Ltd said on Monday that its net profit surged to 693 million yuan ($112.5 million) during the first six months of the year on the back of a 53.7 percent growth in its e-commerce revenue.

Gome said its revenue grew by 7.41 percent in the first half to 29.12 billion yuan. Profit attributable to owners of the parent company soared 115.22 percent to 693 million yuan from 322 million yuan in the same period last year.

Gome said in a report issued to the Hong Kong Stock Exchange that its gross profit margin was 18.83 percent in the first half, representing an annual increase of 0.49 percentage point. Net profit margin was 2.38 percent, 1.19 percentage points higher than the previous year.

The company proposed an interim dividend of 2.1 Hong Kong cents per share, representing a dividend payout ratio of 40 percent of distributable profit.

"The company is on a fast track. We are confident of maintaining a similar pace," said Wang Junzhou, president of Gome. "In the dot-com era, scale is key. With our combined online and offline channels, we will maintain the growth rate of comparable store sales above 5 percent."

Gome's growth for comparable stores sales was 7.25 percent during the first six months.

Meanwhile, the company's online sales revenue, including deals made through website and mobile apps, rocketed 53.7 percent in the first half and accounted for 10 percent of total revenue of the group. The second quarter saw a 64.8 percent pickup in online revenue compared with a year ago.

Share of mobile deals also increased to 10 percent of e-commerce business by end of June.

Fang Wei, CFO of the company, said in July that Gome's revenue from commerce more than doubled to 800 million yuan. "This indicates that we now have an online platform able to generate over 10 billion yuan revenue a year. Share of mobile deals also increased rapidly to 20 percent of total e-commerce last month. We expect the trend to continue," he said.

Besides, Gome is targeting smaller cities while continuing to spruce up flagship stores in big ones. "Tier-two and tier-three cities will be the main growth drivers," Wang said. "Particularly in central and western provinces with high density and the area along the Shanghai-Nanjing railway line, we will open more flagship and satellite stores," he said, adding by year's end, the company's logistics network will cover 200 towns across the country.

The number is set to go up to 400 by 2016.

In the first half, 55 new Gome stores were opened, among which 34 are located in tier-two cities, where same-store sales revenue grew by 11.3 percent to 4.95 billion yuan.

The share of exclusive products, which earn a premium, rose from 1.2 percent in 2009 to 32 percent in the first half. "We will keep focusing on high-profit goods. We hope to boost its share of revenue to 50 percent by 2017," Wang said.

Alvin Lao, an analyst with Hong Kong-based Emperor Securities Ltd, said Gome is on the right track. "E-commerce is the future but also the fiercest battleground of the industry. Brick-and-mortar stores are Gome's advantage. Showrooms are the places they should focus on. But it's still too early to tell whether it will be able to beat competitors such as JD.com and Suning."

Stanley Chik, research manager of Bright Smart Securities, said: "We are cautiously optimistic on the outlook for Gome. The efforts it made in the past two years have started to pay off now. We believe Gome's scale will help it maintain its competitiveness in prices."

?Gome expects sharp rise in profit	?Gome opts for single online e-commerce platform