- Profit rebound this year hard to predict, SSI president says
- Company spends less to build stores as it focuses on marketing
The largest Philippine seller of luxury brands such as Jimmy Choo shoes and Prada handbags says investors and analysts should temper earnings expectations, with competition among retailers squeezing margins -- even as consumer spending shows no signs of letting up.
Intensifying competition for consumers will cap sales growth, SSI Group Inc. President Anthony Huang said in an interview. Profit estimates by analysts are “too rosy” while revenue forecasts are “a little bit optimistic,” he said.
Mid-range and luxury brands are rushing into the Philippines, cashing in on some of Southeast Asia’s most bullish consumers. Cushman & Wakefield Inc. estimates that more than 190 such brands have entered the country since 2008. Filipinos are the second most confident consumers in the world, just behind Indians, Nielsen Holdings Plc said in its latest Global Consumer Confidence Index report.
“The market has turned extremely competitive,” Huang said from his office in Manila’s Makati district. “Over the past years, there’s a huge influx of brands. Consumer spending is growing but that is also going to other things. Retail will still grow but it won’t be as fast as in the past.”
Manila-based SSI posted its first profit decline in five years in 2015 amid rising competition and the need to match price discounts of rival brands, including Hennes & Mauritz AB’s H&M and Fast Retailing Co.’s Uniqlo clothing chain. Net income fell almost a fifth even as sales posted a record. Last year’s profit margin shrank to 53.5 percent from 56.1 percent the previous year, Huang said.
SSI’s adjusted net income may reach 1.11 billion pesos ($24 million) this year and rise to 1.41 billion pesos in 2017, while sales will increase from 19.4 billion pesos to 21.7 billion pesos over the period, according to the average of analysts’ projections compiled by Bloomberg.
Since SSI’s November 2014 debut at 7.50 pesos, the stock have dropped 51 percent through Friday, compared with the 1.2 percent rise in the Philippine Stock Exchange Index. The shares fell as much as 4.6 percent to 3.52 pesos Monday to the lowest intraday level in a week.
A rebound in SSI’s profit this year is “difficult” to predict and will depend on the intensity of competition, said Huang, who declined to give specific forecasts. He said gross profit margin will slide to about 50 percent to 51 percent this year as its so-called fast fashion brands such as Old Navy and Zara grow faster than high-end labels. SSI will maintain its margin at that level through 2018 by managing costs, Huang added.
The company, also known as Stores Specialists, has a portfolio of more than 100 brands ranging from clothes, bags, footwear, personal care to home furnishings. It opened its first Prada store in 2003 in metro Manila and followed five years later with Jimmy Choo and Hermes stores, according to its website.
SSI plans to spend 600 million pesos this year to add between 5,000 square meters to 6,000 square meters of specialty stores.
“Our focus after growing our portfolio of brands and stores, for lack of a better term, is to milk it,” Huang said. “It’s all now focused on the execution: buying the right kind of merchandise and making marketing flawless to create brand-awareness that suits us.”
SSI earlier this year sold its department store assets due to competition in that segment and to focus its resources on specialty stores, which is drawing more consumers. The sale raised 499 million pesos, Huang said.
Huang said the company will add another online retail store this year to its three e-commerce websites, as it expects purchases through the Internet to pick up as broadband services improve and smart phones proliferate.
The company will also open as many as 10 more FamilyMart convenience stores this year in Manila’s main business districts, adding to the 112 franchised outlets it operated at the end of last year. The company needs a network of at least 400 FamilyMart stores for the venture to be profitable, and is looking to boost the chain’s appeal in the suburbs, Huang said.