CEC International Holdings, which runs the 759 Store chain, describes its latest financial year as the worst ever since the group’s establishment 38 years ago.
For the first time, it has reported a drop in total revenue, of 12.5 per cent to HK$2.1 billion (US$268.9 million) from $2.4 billion the previous year. The consolidated gross profit fell by 10.9 per cent to $731.8 million, while the consolidated gross margin increased by 0.6 points to 34 per cent.
With a depressed retail market and keen competition, the group moved away from its strategy of achieving sales growth through store expansion. It says costs such as rent, salaries and management fees plus a drop in same-store sales cancelled out the gain in sales built by store scale. As well as this, the group had not been able to immediately close underperforming stores because of contractual lease terms.
Although salary and administration costs had come under control through internal restructuring, the company says the uplifting effect was outweighed by the drop in total revenue and consolidated gross profit, bringing about a consolidated loss of $49.9 million.
EBITDA amounted to $46 million compared to $74.9 million the previous year.
Segment revenue for the group’s retail business (it is also involved in electronic components manufacturing and property investment) fell 11.8 per cent to $2 billion for the year, accounting for about 93 per cent of total revenue, the same as the previous year.
CEC says it directly imported more than 90 per cent of products for its 759 Store chain from 67 countries or regions (63 the previous year). The products showing the most growth were Thailand jasmine rice, frozen Chinese dim sum, toilet paper and laundry detergent.
To cope with soaring rental and management costs, the group re-focussed on daily necessities such as snacks, food groceries, personal-care products and household products. As a result, inventory dropped by 2000 products during the year to about 21,000 items.
At the end of April, the company had 243 stores (excluding those run with partners), 28 fewer than the previous 12 months. Eight stores were opened, 34 were closed and two merged with nearby outlets.
