Liu Guoquan: After The Outbreak Of The New Crown Pneumonia, The Situation Is More Pessimistic.

Clothing retailer Giordano (00709-HK) announced its annual performance in 2019, with sales of HK $4 billion 852 million, down 11.9% year on year, and net profit of HK $230 million, a decrease of 52.1% compared with last year. If the accounting standards were adopted, the net profit would be HK $289 million, a decrease of 39.8% compared with 2018. This is mainly due to the decrease in company sales and the impairment of assets in use of rental and non cash accounting expenses. Gross profit margin fell slightly by 0.3 percentage points to 58.7% during the year. The final dividend is 4.4 Hong Kong cents and the annual dividend is 14.6 Hong Kong cents. The dividend payout ratio is 100%.

(Giordano official website screenshot)

Giordano announced recently that, in view of the global spread of the new crown pneumonia epidemic, which affected the entity's business and market sentiment, chairman and chief executive officer Liu Guoquan paid half of his resources. Other executive directors and senior management team members in Hongkong also voluntarily reduced their salaries by 30%, about 15 from other management team members from Hongkong, Macao, mainland China and other less affected areas. They voluntarily reduced their salaries by 10% and 20% respectively, all for three months, and came into force on 1 January.

At today's press conference, Liu Guoquan said that the voluntary pay reduction is confined to the senior level, while the "three no" principle is applied to the grass-roots staff, that is, no layoffs, no pay cuts and no Jerry building. However, if the employees voluntarily reduce the rework time, the wages will be deducted according to the proportion of the rework time, but it is voluntary and no pressure. He also pointed out that at present, overseas tourists do not visit Hongkong, and local consumption is also weak. In addition, they are also affected by the large correlation with the mainland economy. Therefore, when the unemployment tide is going to happen, it is hard to predict when the local unemployment will happen. The only thing we can do is to do well in our business.

SARS period is not as bad as it is now. But we hope that we can "make the best use of our talents, make the best use of our land and make the best use of our goods and flow freely". We are now making great efforts in inventory management and accounts receivable management to save enough bullets. We believe that when the market rebounded, we will recover much faster than experts, "Liu Guoquan said.

At present, the market is gloomy. Many tenants and owners have discussed the issue of rent reduction. Liu Guoquan said that the current rent reduction is due to rent reduction in February and March, and the second quarter rent has not yet been involved. Some owners are more likely to accept the rent reduction requirements, but there are also owners who are hesitant to reduce the rent. He said that the company now operates 60 shops in Hongkong, of which 20 shops will expire this year, and 2 to 3 give up the renewal of the contract because of the fact that the lease is not good enough. If the store fails to achieve a reasonable profit level, it will choose not to renew the lease.

Chen Jiawei, executive director and chief operating officer of the company, said that the mainland side had about 260 Direct stores. Half of the shops had to suspend business because of the need to prevent and control the epidemic. Until recently, about 50 of them were still closed, most of which were concentrated in Hubei, while other cities began to slowly revive their stores.

Asked whether the sale would be reduced, Liu Guoquan thought that demand was no longer there. Even though the price reduction might not be able to play a significant role, the company did not consider reducing sales promotion as a strategy.

He said that the company has been developing an international market. Last year, its performance in the Middle East and Indonesia was very good. It has also registered in countries such as South Africa, Russia and India. It will continue to expand overseas markets in the next three to five years. And the reason why developing countries as overseas market force, Liu Guoquan said, because the mature market competition is bigger, and the company positioning is not the international top brand, on the contrary, the developing countries have relatively low brand awareness, and the international big card lacks interest in this kind of market, instead, it gives the company better space to open up overseas markets.

For the future market, Liu Guoquan's view is pessimistic. He believes that the SARS epidemic years ago lasted for about half a year, and believed that the new crown pneumonia would last longer and the impact on the region would be greater. After the SARS, there was a free trade to boost Hongkong's economy. After the outbreak, Hongkong's economy and Hong Kong enterprises were in urgent need of transformation.

The following is a partial record of the press conference.

Does Q1. have any impact on the company's store operation under the current market conditions? Does the company have any layoffs and pay cuts?

Liu Guoquan: because of the epidemic prevention and control in the mainland, the government has asked to close the store. But now shops are being reopened. In Hongkong, we have not closed stores, but there will be shorter business hours. We have a voluntary salary cut on top of our senior management, but for the grass-roots level, we pursue three: no layoffs, no pay cuts and no Jerry building. If employees voluntarily want to reduce their working hours, they will deduct their salaries in proportion, but they are all voluntary and will not be under pressure. Half of our staff work at home and half of them go to office buildings. It is estimated that this state will continue for some time.

Q2. do you have any discussions with the landlord about the rent reduction in Hongkong? How will it be? Will it close?

Liu Guoquan: our current rent reduction situation is similar to that of other experts. Some owners are better negotiable, but others will be more hesitant. For us, if we do not reach a reasonable level of profit, we will not renew the lease. At present, there are 60 shops in Hongkong, 20 of which need to renew contracts this year, 2-3 of which are not ideal.

Q3. what is the reopening of the mainland's stores?

Chen Jiawei: we have 260 direct outlets in the mainland. Earlier, because of the epidemic prevention and control, half of our shops were closed. Recently, we have 50 shops closed, but most of them are concentrated in Hubei. Other cities are slowly resuming their business.

Will Q4. consider reducing prices to stimulate consumption?

Liu Guoquan: we think demand is not there, and the price reduction can not stimulate too much consumption. In the long run, we believe that our brand will develop slowly and will not sell very cheap. We also hope that the Middle East market can make more money and make up for the decline in other markets. So sales reduction is not our strategy.

Q5. now some enterprises are starting to manufacture their own masks. Will the company have such a plan?

Liu Guoquan: we do not have this plan. If we sell it by ourselves, I am sorry to say that it is too expensive to sell. But we sell flat mirrors in stores, and they are also a bit of protective equipment.