Potent domestic consumption on the mainland buoyed Parkson Retail Group's first quarter earnings by an impressive 40 percent, amid tepid global economic conditions.

Parkson Retail, which had managed 41 department stores spanning across 26 cities on the mainland by the end of 2007, recorded a net profit of 225 million yuan in the first three months of 2008. This represents a 40 percent jump compared to the 160 million yuan reaped by the company same time last year.

Earnings per share in Parkson rose to 0.40 yuan for the fiscal period concerned.

The retail giant's proceeds from sales also saw a robust climb of 25.5 percent to bring in a total of 2.8 billion yuan. "Parkson's sales growth in the first quarter is very strong," Castor Pang, strategist of Sun Hung Kai Financial said.

He said: "Driven by the growing consumption demand on the mainland, retail related stocks like Parkson should stand to benefit." However, the runaway inflation might be a potential challenge, he cautioned.

"Consumption spending will be affected if the government continues to roll out tightening policies to tackle with the high inflation," Pang said.

Other than consumer spending, inflating rents and staff costs could also hamper the profitability of the group. Operating expense in the first quarter totaled 627 million yuan - a 20 percent climb over the same time last year.

Rental expense amounted to 91 million yuan and staff costs took up 78 million yuan, jumping 20 percent and 2 percent respectively.

Parkson Retail takes the leading position within the fragmented mainland department store industry. Despite its sprawling department store network, Parkson only takes up 2 percent of the total market share in the sector.

The group had earmarked to open an additional 7 department stores in 2008.

Parkson shares closed the trading day on Friday at HK$68.30, climbing 1.26 percent or HK$0.85. "It is very expensive," Pang admitted, "even though the results looked very good, the question whether there is any room for the share price to rise remains."

Pang said if shares in the retail group drops to HK$65 apiece, it would be a reasonable price to purchase the stock.

Parkson's major rival on the mainland, New World Department Store, slipped 1.37 percent on Friday.

(HK Edition 05/24/2008 page2)