Hong Kong listed retailer Emperor Watch & Jewellery has reported a net loss of HK$54.1 million in the first half of 2015, citing increased rental expenses coupled with weakening sales momentum and a decline in gross profit margin.
The loss compares with a net profit of HK$104.7 million in the first half of 2014.
Emperor described the six months as “extraordinary” due to the various market challenges – and fears worse may yet be to come.
“Market sentiment in Hong Kong stayed weak, in response to the continued austerity initiatives and unfavourable tourism environment following local protests in the previous year. Growth in numbers of Mainland China visitors, who have for long been the mainstay of Hong Kong and Macau tourism revenue, has started to slow, in terms of both visitations and spending power,” the company said in its regulatory filing.
“Coupled with the weakening of foreign currencies against the US dollar, and therefore against the Hong Kong dollar, some of the consumption demand has shifted to overseas markets. The Hong Kong luxury sector as a whole shows signs of slowing after years of rapid growth.
“Hong Kong retail space continues to rank as the world’s most expensive, although rents started moderating in recent months. Hong Kong retailers are set to face an even worse situation at the operating level.”
The group says it is planning to “streamline” its retail network in Hong Kong to reduce rental pressure and enhance efficiency.
In the six months to June 30, Emperor’s revenue fell 21.1 per cent to HK$2.42 billion. Watch sales fell by 21.9 per cent, jewellery sales by 17.6 per cent. Hong Kong accounted for 79 per cent of total sales.
Gross profit declined 23.1 per cent. Due to the watch price cuts in Hong Kong during the period, the overall gross profit margin decreased to 24.5 per cent. “Nevertheless, this gross profit margin decline was mitigated by the enhanced mix of the jewellery business.”
As at the end of June, Emperor had 97 stores – nine more than at the end of December: 24 in Hong Kong, six in Macau, 61 in Mainland China, and six in Singapore.
In China, Emperor is optimising the coverage for Emperor Jewellery stores and expanding into Tier II and III cities, which the company says are experiencing higher economic growth and rapid expansion in jewellery markets.