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Gome’s First-Quarter Profit Jumps 66% on Store Expansion

Gome Electrical Appliances Holding Ltd., China’s second-largest electronics retailer, said first-quarter profit surged 66 percent after it opened more stores.

Net income for the three months ended March 31 rose to 552 million yuan ($85 million) from 332.6 million yuan a year earlier, the company said in a statement to the Hong Kong stock exchange today. Sales gained 16 percent to 13.7 billion yuan.

The Beijing-based home appliance retailer had 30 net store openings in the first quarter, bringing the total to 856, Fang Wei, the company’s acting chief financial officer, said on a conference call today.

“Judging from progress on site selection and contract signing, it would be very likely to reach the full-year target of 260 new stores,” Fang said. April, September and December are usually the peak times for store openings as major shopping seasons follow, he said.

Gome has been focusing on opening outlets in targeted regions, speeding up expansion in smaller cities and tapping into the Internet-commerce market in a bid to compete with larger rival Suning Appliance Co.

Gome said yesterday it wants online sales to account for more than 10 percent of revenue in two to three years, and will keep prices competitive through bulk purchases from its suppliers.

Capital Spending

Fang said the company targets 1 billion to 1.5 billion yuan in capital spending for the year and has no need to raise capital for operational purposes. The gross margin may continue to move up from 18.6 percent at the end of the first quarter, he said.

The stock slid 0.7 percent to HK$2.81 at the 4 p.m. close in Hong Kong, compared with a 0.7 percent gain for the Hang Seng Index. Gome’s shares have climbed 25 percent in the past year.

Former chairman Chen Xiao stepped down in March after losing a battle with the company’s jailed billionaire founder, Huang Guangyu, over the pace of store openings.

Chen said this month the company is overcharging suppliers and its plan for new store openings is impossible to reach, the 21st Century Business Herald reported May 11.

Huang, also known as Wong Kwong Yu, and his wife, Lisa Du Juan, own 32.2 percent of Gome, while Bain Capital LLC holds 9.9 percent, according to data compiled by Bloomberg.

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