The Gome logo is displayed during a news conference for the company's annual results in Hong Kong Monday. The company said it will concentrate on expansion in key regions. Jerome Favre / Bloomberg

Firm attributes growth to robust demand, aiming to open more stores

Gome Electrical Appliances Holdings Ltd, China's second-biggest electronics retailer, said profit rose 39 percent as consumer demand for home appliances climbed.

Net income rose to 1.96 billion yuan ($299 million), or 0.12 yuan a share in 2010, from 1.41 billion yuan, or 0.095 yuan, a year earlier, Gome said in a statement to the Hong Kong Stock Exchange Monday. That was in line with the 1.97 billion yuan average of eight analysts' estimates compiled by Bloomberg. Sales rose 19 percent to 50.9 billion yuan.

Gome joined China's biggest electronics retailer Suning in posting higher earnings after opening more outlets to tap rising demand for home appliances. Gome has said it aims to add outlets and improve profits, and sees "great growth potential" to lift its share of China's home appliances market from about 10 percent currently.

"The group will concentrate on opening stores in key regions, particularly megastores and flagship stores" in major urban areas including Beijing and Shanghai, Gome said in the statement. The company also said it plans to speed up expansion in second-tier markets.

The retailer's shares fell 1.6 percent to HK$2.54 in Hong Kong trading, before the earnings announcement. The stock has declined 2.7 percent in the past year, compared with the 9.6 percent climb by the benchmark Hang Seng Index.

"We expect to see the company shift its focus to network expansion from efficiency improvement," CCB International Securities Ltd's analysts Forrest Chan, Sze Pan-pan and Timothy Sun wrote in a March 10 report. "Gome is now in a better position to study the possibility of a private store injection by the largest shareholder."

Huang Guangyu, Gome's founder who has fought from jail for control of the company, disagreed with former chairman Chen Xiao over decisions to slow store openings. Chen stepped down earlier this month.

The board appointments of Huang's lawyer Zou Xiaochun and sister Huang Yanhong were followed by a statement saying there was no longer an intention to terminate the relationship.

Same-store sales, which show how stores are faring without taking into account the impact of newly opened outlets, rose 22 percent last year, according to the statement. Gome closed 39 underperforming stores, opened 139 new stores and remodeled existing stores in the period, it said.

The electronics and appliances market in China may surge 70 percent to 2.14 trillion yuan in 2015 from 1.26 trillion yuan in 2010, according to Euromonitor International.

Nanjing-based Suning's net income climbed 39 percent to 4.01 billion yuan last year, it said on March 15.

"Rapid expansion will help maintain the equilibrium between Gome and Suning in the market and protect Gome's long-term competitive position, though it may hurt near-term profitability," the CCB analysts said.

Bloomberg

(HK Edition 03/29/2011 page3)