Giordano Closed Shop Strategy To Boost Net Profit Growth By 4%

The sales of winter products in Greater China were suppressed due to the warmer weather. The fourth quarter sales of Hongkong Giordano International Ltd (0709.HK) continued to slow down from the second half of the year, while the same store sales in the second half of the year only recorded a 1% growth, down by 4% in the 6% and three quarters of the first half, and the average sales growth in the same quarter in the 2015 fiscal year was 3%.

Net sales of HK $5 billion 381 million for the year decreased by 3% compared with HK $5 billion 545 million in fiscal 2014, and increased by 1% at fixed exchange rates.

Gross profit margin declined by 40 basis points due to the appreciation of the US dollar, which dropped from 58% in the previous year to 57.6%.

In the Greater China region, sales of mainland China declined by 8.2% to HK $1 billion 451 million, down 6% from fixed exchange rates, but sales in the same stores were better than those in the 98 direct outlets. The growth rate in mainland China was 6% from a low base in 2014.

Chen Jiawei, chief operating officer of the group, is cautiously optimistic about the mainland's business in the annual performance conference, and expects that the number of stores in the mainland will be flat or slightly higher this year, while the three or four line cities and e-commerce will be the driving force for the mainland's future growth, of which electronic business accounted for 12% of the mainland's business last year.

Liu Guoquan, chairman and chief executive of the group, pointed out that the group would not follow the example of the domestic industry to promote sales through the price reduction war. Instead, it would continue to increase the proportion of higher priced products, so as to design and guide consumers to buy.

Hongkong's domestic market declined by 0.7% to HK $971 million in 2014, due to the shrinking of the overall garment market and the decline in the number and consumption of mainland tourists. But the same store sales increased by 7% annually.

Taiwan's sales fell by 3.5% to HK $639 million per Annex, increasing by 1% at fixed exchange rates.

Chief financial officer Ren Yong Wen disclosed that Hong Kong and Macao were in the first two months of this year.

It is 6% higher than the same period last year and is expected to maintain a median growth rate throughout the year.

Meanwhile, the same store sales in the mainland declined by 3%, and the sales volume of the same store was flat.

The two overseas markets show different performance. Southeast Asia's sales growth of 6% in the same store promotes sales to achieve a 8% increase at fixed exchange rate, which is 3.3% to HK $1 billion 317 million in real terms.

The sharp drop in oil prices and political turmoil dragged down the same store sales in the Middle East market by 3%, while sales increased by 3.6% to HK $617 million.

As for poor performance in the Middle East market, Liu Guoquan pointed out that the group has been doing business for more than 20 years in the region, has long been rooted in the local, so it will continue to invest in the future, and plans to wholesale in the future.

Development in Eastern Europe and Africa.

As of December 31, 2015, Giordano international has 2371 stores in the world, and it has adjusted the policy of closing the loss stores according to the adjustment of the store portfolio, which is 81 less than the same period of the previous year. The group points out that the loss of the stores has contributed HK $57 million to the profit.

Giordano International announced today that Wen Daoming, executive director and chief financial officer, has resigned. He will remain in office until March 25th. The group has not announced the successor, and the chief financial officer will be appointed as the agent before the new chief financial officer takes office.

The international market rose 6% on Thursday and closed at HK $3.18, narrowing its stock to 13.4% in 2016.

Annual net profit attributable to shareholders increased by 4.4% to HK $426 million per year, and the growth of operating profit in mainland China was offset by the decline in operating profits of Hongkong and South Korea and the adverse effects of exchange rate.

The group announced a final dividend of HK $14.5 per share, representing a total dividend of 27 Hong Kong cents per share, an increase of 8% over the previous year's 25 Hong Kong cents.

The free cash flow of operating income increased significantly from HK $399 million at the end of 2014 to HK $644 million, an increase of 61%, due to the decrease in operating expenses, capital expenditure and paid income tax during the year.

Liu Guoquan pointed out that although the economy of Hongkong has turned bad, it has also led to the normalization of the rent reduction. He disclosed that the rentals of the new rentals had dropped by 20%. This year's local 1/3, which means more than 20 stores need to be renewed, and because the local consumption power has not been obvious, there will be no obvious recession. The group will also open a shop in strategic areas. He predicts that there will be room for reducing the local rent level in the future, which will be beneficial to the reduction of operating expenses, and this year's business focus will be shifted to raising gross margin, including means of ending the loss stores and improving the product mix.