China’s Gome Posts Narrower-Than-Estimated Loss

Gome Electrical Appliances Holding Ltd., China’s second-largest electronics retailer, posted a narrower-than-estimated loss last year as it shuttered some of its less profitable stores and curbed expenses.

The company had a net loss of 596.6 million yuan ($96 million) in 2012, compared with a profit of 1.84 billion yuan a year earlier, it said in a filing to the Hong Kong stock exchange yesterday. That was smaller than the 616.3 million yuan average loss estimate of 15 analysts surveyed by Bloomberg News. Gome had warned of the loss in a Jan. 28 statement to the exchange.

The Beijing-based retailer is adding more higher margin products and upgrading its main stores as it seeks to revive results. It returned to profitability in the fourth quarter with earnings of 90 million yuan, according to a powerpoint presentation at the company’s earnings press conference.

“The worst is over for the company,” President Wang Jun Zhou said at a press conference. “This year, we will see the results of changing our product mix and our cost control measures coming further through.”

Its shares rose 3.5 percent to 90 Hong Kong cents at 9:58 a.m. in Hong Kong trading today. The benchmark Hang Seng Index fell 0.5 percent.

The company along with larger rival Suning Commerce Group Co. is expanding into e-commerce as more Chinese buyers increase their purchases online. China’s online-retail transactions are projected to more than double to 2.57 trillion yuan between 2012 to 2015, according to researcher Analysys International. Gome also faced a weaker Chinese economy and price wars with Nanjing-based Suning and 360buy Jingdong Inc. last year. Sales fell 20 percent to 47.9 billion yuan.

Gome and Suning, China’s largest electronics retailer, were hurt by intense competition after online retailer 360buy triggered a price war in August. Suning and Gome pledged to cut prices after Liu Qiangdong, chairman of 360buy, announced that all major appliances on its website would be at least 10 percent cheaper than those sold by the store operators.

The company didn’t meet a target for 6 billion yuan in e-commerce sales in 2012, Chief Financial Officer Fang Wei said.

A slowdown in China’s economic growth also contributed to the 2012 loss, the company said in its January filing to the stock exchange. China’s economy expanded 7.8 percent in 2012, the least in 13 years.

Gome’s retail stores fell from 1,079 to 1,049 at the end of 2012. Its overall China store count will grow by about 30 outlets this year, mostly in the smaller cities outside of Shanghai and Beijing, Anita Sun, deputy manager at the company’s investor relations department said.

— With assistance by Liza Lin

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