Chinese herbal medicine retailer Eu Yan Sang has repoted a 38 per cent drop in profit on stable revenues in the first quarter of its current financial year.
Eu Yan Sang posted a net profit of S$5.45 million on sales of $110 million.
Improved sales in Australia, Singapore and Malaysia during the Chinese New Year, and in Malaysia where shoppers stocked up ahead of the introduction of GST on April 1, balanced a decline in Hong Kong, where the company says sales were soft due to the fall in mainland visitros.
Gross margin for the quarter dipped 2.6 per cent due mainly to the impact of sales mix and longer lead time to Chinese New Year. Correspondingly, the group’s operating profit declined due to lower gross margin contribution and increased operating expenses.
As at 31 March 2015, Eu Yan Sang had 258 company-operated retail outlets and 30 franchises in China, Hong Kong, Macau, Malaysia, Singapore and Australia.
Group CEO Richard Eu said despite the challenging retail environment in Hong Kong and Macau, where retail revenue fell 21 per cent, most of the company’s key markets showed resilience.
“Singapore, Malaysia and Australia markets have reported revenue growth. We see long-term opportunities especially in rising health awareness as consumers are becoming more discerning and better educated about wellness issues and are actively seeking for healthy food and natural health remedies. This is a space where we differentiate ourselves from others, where consumers understand product quality over pricing.
“Rising disposable income in the region also played an important role to our business. In addition, our wellness offerings are easily accessible through ongoing introduction of new, exciting products and the extension of our wholesale channels,” he said.
Retail revenue rose five per cent driven by increased consumer spending during the longer lead up period to Chinese New Year in Malaysia and Singapore, while the increased sales in company-operated outlets and improvement in same-store sales boosted retail revenue in Australia.
The wholesale segment dipped by 32 per cent due to the slower offtake in trade as a result of the decline in mainland tourists’ spending in Hong Kong, which was caused by China’s recent move to restrict visitations of its nationals to Hong Kong.
“In local currency terms, Australia showed the strongest improvement with a boost of 28 per cent in revenue,” the company said in its earnings statement. “This was in line with the increase in number of company-operated outlets and the increase in same-store sales.”
For the rest of the year, the company expects the softer market to continue in Hong Kong, and in Malaysia where consumers are still adjusting to the impact of GST.
But after two years of decline, Singapore is showing growth.
“Given the recent regulations to limit Chinese tourists in Hong Kong and the enforcement of GST in Malaysia, the group expects a protracted recovery in these markets. We believe that the negative impact of GST on retail sales in Malaysia will be a short-term challenge.”
