City Chain makes mark in Mainland

Fashion lifestyle watch retailer City Chain says its Mainland China sales rose 23.2 per cent last financial year

City Chain, a subsidiary of Hong Kong-listed Stelux Holdings, has 388 stores in China, Macau, Hong Kong, Singapore, Thailand and Malaysia. In the year to March 31, its total sales rose just 1.5 per cent and its profit (before interest and tax) fell 12.1 per cent to HK$189.4 million on a gross profit margin of 60.1 per cent.

China was a standout market in a challenging year for the brand which closed eight stores in Southeast Asia, four in Hong Kong and Macau and opened eight in the mainland, for a net loss of four.

In Mainland China, where it now has 104 stores, City Chain’s sales topped $230.9 million with same store growth of 12 per cent. Stelux says a higher loss – $55.1 million – reflected start-up costs from an expansion into second and third tier cities, in Guangdong and Fujian (Southern China); Jiangsu and Zhejiang (Eastern China); Sichuan and Chongqing (Southwestern China). “Ongoing operational initiatives… led to a narrowing of store level losses and better store productivity compared to the previous year,” Stelux says.

“Specifically, our Guangdong operations have turned the corner to report store level profits. With the external operating environment in Hong Kong and Macau remaining bleak and uncertain, plans were implemented in the second half of the year to fasten the pace of expansion of the retail network in Greater China. Therefore, in the coming year, accelerating turnover growth will be a key objective.

“Plans are underway to open new stores in southern, eastern and southwestern China and to focus more resources on growing our online business. To support this, advertising savings from City Chain Hong Kong will be redeployed to this business segment to increase advertising spending, and reallocated to digital and social media.”

Hong Kong and Macau

In Hong Kong and Macau, City Chain’s performance was a tale of two halves… In the first six months, sales rose 6.4 per cent, but a sudden downturn in the second half saw turnover fall by 0.6 per cent to to $1.467 billion.

Gross margin came under pressure in the second half, falling 1.3 per cent to 61.7 per cent and, consequently, profit declined by 12.6 per cent to $244.3 million. Operating costs rose mildly by 3.2 per cent.

“With external conditions in Hong Kong and Macau remaining largely unfavourable and, particularly, in Hong Kong less certain, the foremost task is to maintain top line performance and to achieve a better stock turn. Hence immediate measures have been adopted or are in the pipeline to reduce the adverse impact on our business.”

In Southeast Asia, City Chain’s performance was mixed, with Singapore and Malaysia posting much improved results but Thailand lagging. Turnover remained flat.

Stelux says in Singapore and Malaysia, the positive effects from restructuring are beginning to show. A profit of $300,000 was reported, compared with a loss of $17.4 million last year, and on a neutralised exchange rate basis, profit would have improved $10.9 million (compared with a loss of $13 million).

Gross profit improved for all three markets in the second half of the year. Operating costs and shop rentals respectively fell 6.4 per cent and eight per cent compared to last year, whilst gross margin was stable at 55 per cent.

City Chain Malaysia recorded a year on year earnings improvement of 156 per cent to around $20 million on turnover up 11.7 per cent.

City Chain Singapore significantly narrowed its losses to $11.2 million this year against $25.7 million the previous year as an accelerated improvement in the second half resulted in an EBIT of $1.3 million against a loss of $12.5 million in the first half.

City Chain Thailand reported a loss of $8.4 million as fragile sentiment continued to weigh down performance. In the second half, Stelux turned its focus to restructuring the Thai operations. “While operating costs have fallen four per cent, intense competition shaved gross margin. Non-performing stores will be closed. Similar policies adopted in Singapore and Malaysia to enhance operational efficiencies are being implemented and improvements are expected to be seen,” said Stelux.

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