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Gome Retail warns of massive loss as restructure ramps up

Gome Retail Holdings has warned shareholders it will take a restructuring hit of RMB4.2 billion and RMB4.9 billion (US$627 million to $731 million) for the last financial year.
But after excluding extraordinary items, the group expects its final figures will show it close to breaking even, despite sales revenue for the year falling by about 10 per cent.
The massive loss is based on goodwill write-downs resulting from a major restructuring initiative which commenced last year, when it opened more than 600 new stores across Mainland China.
“The group continues its strategic development of large-scale integrated flagship stores and home decoration material stores in the first- and second-tier cities, and [will] expedite its county-level stores network in the third- to sixth-tier cities,” Gome Retail Holdings said in a stock exchange filing.  
The company is building what it describes as “a new retail ecosystem” combining online and offline channels to sell and deliver household appliances and other home and living products and services across the country.
Parts of the business’ new direction are already paying off. New business categories such as home solutions and the integration of kitchen cabinets with electrical appliances, saw sales double last year.
“Based on the preliminary review of the latest management accounts of the group, there had been a steady development in the new market, new business and new technology during the reporting period.”
Overall gross merchandise volume of the business – both online and offline – is expected to have remained stable throughout the year. However, the group’s new ME Shop is expected to have grown by more than 300 per cent, while service GMV and GMV from smart products are expected to have grown by 50 per cent and 80 per cent, respectively, year on year.
Final results for last year are expected to be released by the end of this month, but the company stressed it remains in a healthy financial position despite the projected paper losses, with cash reserves of RMB 10 billion (US$1.49 billion).

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