Beauty-products retailer Sa Sa International says it expects to post a record loss as high as HK$600 million (US$77.4 million) for the March year due to the collapse of Hong Kong’s tourism market in the wake of the Covid-19 crisis.
In a profit warning, chairman Simon Kwok said the figure – which contrasts with a $471 million profit for the prior year – includes a $40 million loss resulting from terminating leases when it exited the Singapore market, and trading deficits in other markets adding up to between $220 million and $260 million. The rest of the potential loss, which the company expects will be between $500 million and $600 million, is the result of impairments, including on property, plant and equipment.
Kwok said sales though its retail store network have been in “drastic decline” amid the Covid-19 outbreak.
“The provision for the impairment losses is a non-cash accounting treatment, as such, it has no impact on the group’s cash position for the financial year.”
He said the group has no borrowing currently, has adequate cash to meet its current business needs and expects to recover about $20 million from the closure of Sa Sa Singapore.
The ranks of mainland Chinese visitors has been in decline since July 1, following the outbreak of social unrest in Hong Kong. But numbers fell to near zero when the border was effectively closed in the wake of the pandemic at the beginning of this year. Local consumer sentiment has also dampened.
“The Covid-19 epidemic also caused the foot traffic and retail sales to fall significantly at our stores outside of Hong Kong SAR, including the Macau SAR and Mainland China,” said Kwok. “The group’s e-commerce business was also affected as logistics services were disrupted by the epidemic.”
As previously reported, Sa Sa’s fourth-quarter sales plunged by 62 per cent in Hong Kong and Macau and sales to mainlanders in Hong Kong and Macau slumped by 80.8 per cent.
Even in Malaysia, a market which has always been profitable for Sa Sa International, Covid-19 has been impacted by the epidemic since February.
The company has been trimming its store network in Hong Kong as leases come up for renewal and the company will continue to pursue rent relief from landlords. It is also taking steps to reduce costs and streamline operations to work through the slump in sales.
Sa Sa International will publish its audited results prior to June 30.