Hong Kong’s shrinking retail market has been singled out as the main reason for 759 Store parent CEC International Holdings reporting a 14.2 per cent drop in revenue for its latest six months’ trading.
Its unaudited revenue was HK$1.079 billion (US$139.1 million) for the half-year ending October 31, down from HK$1.258 billion for the same period in 2015.
Its retail segment was hit hardest by the market conditions, with revenue slumping 13.3 per cent to HK$1.001 billion. Retail business accounted for 92.8 per cent of total revenue, up from 91.8 per cent the previous year.
With its revenue drop, the group had a consolidated loss of HK$29.9 million, following a consolidated profit of HK$8.1 million for the same period the previous year.
A contributing factor, says the group, is its “quick turnover/lower margin” 759 Store. The low
margin setting proved to be a double-edged sword in that it takes time to adjust when market trends reverse.
Another factor was fluctuating international currencies affecting retail profits because of the business’ direct-import procurement model.
Main revenue source
Finally, Hong Kong’s downward trajectory of retail sales coincided with an active expansion of the group’s retail business, including shop openings and setting up a logistics warehouse in line with the group’s aim to expand into groceries rather than relying on snacks and confectionary.
Since its establishment in 2010, 759 Store has become the main revenue source for the group, but for the latest six months its retail segment had an operating loss of HK$10 million, a switch around from its operating profit of HK$22.2 million for the same period the previous year.
Segmental revenue came in at HK$1.001billion (2015: HK$1.16 billion), a drop of about 13.3 per cent. Gross profit, at HK$376.2 million (2015: HK$403.7 million) decreased 6.8 per cent.
During the period, an in-depth operational review improved gross profit margin by 2.7 points 37.6 from 34.9 per cent. This included enhancing the ratio of directly imported products to more than 90 per cent.
At the end of the review period, the group had 255 759 Stores, down from 271 12 months earlier. This resulted from three new outlets, 16 closures and three stores being combined. CEC will open its first mainland China 759 Store at Zhongshan after Lunar New Year.
CEC says shop rents were still its largest expense item for retail, rising 3.3 per cent in 12 months. “The level of shop rent still stayed high even though the local retail market went worse with retail sales declining for 20 consecutive months.”
Meanwhile, the group recorded steady growth for its seven restaurants, positioned as canteens
serving workers.
The group has three reportable segments – retail business, electronic components manufacturing and investment properties.