GOME Retail In 1H 2022 consolidated gross profit margin significantly increased to 19.8%, Cash flows from operating activities improved significantly and positively
GOME Retail Holdings Limited (HKEX Code: 493. HK, “GOME” or “the Company”, and together with its subsidiaries, “the Group”)announced its unaudited interim results during the six months ended 30 June 2022 (the “Reporting Period”).
The consolidated gross profit margin and operating cash flow improved significantly, and construction of the full retail ecological sharing platform has been completed
In 1H 2022, GOME continues to promote the implementation of the “Home . Living” Strategy, and based on the development philosophy from the platform perspective, users’ perspective, and technology perspective, the Company created a “full retail ecosystem sharing platform” by establishing and integrating its six business platforms, namely “online platform, offline platform, supply chain platform, logistics platform, big data & cloud platform and sharing and joint development platform”. The Group further promoted the grid-based model of “Home Living and Home Services” by implementing the core business strategies of entertainment-oriented marketing, low price, quality service, and technology, striving to meet the all-around consumption and service needs of family users.
In the first half of the year, there are various lockdown and control measures in most regions affected by the recurring outbreaks of the pandemic in China, the momentum of economic recovery slowed down, and offline entities were disrupted significantly. And online business was also hit hard since the outbreak of the pandemic because of the disruption to the logistics service. However, with the gradual introduction of the national stimulus package, such as the stimulus to automobile consumption in June, or in July 13 departments including the Ministry of Commerce issued the “Several Measures on Promoting Green and Smart Appliance Consumption” to comprehensively promote the domestic green and smart household appliance consumption, would greatly benefiting the company’s business recovery and significant growth in future. In 1H of 2022, the sales revenue of the Group was approximately RMB12,109 million, and the consolidated gross profit margin was approximately 19.81%, increasing substantially by 5.56 percentage points as compared to the corresponding period last year. The Group’s operating expenses were approximately RMB4,839 million, which decreased by 3.10% as compared to the corresponding period last year. The Group’s loss attributable to the owners of the parent was approximately RMB2,966 million. During the Reporting Period, the Group’s cash flows generated from operating activities had significant improvement over the corresponding period last year, achieving a positive net inflow of RMB55 million.
Focusing on the main business with a vertical model, reduce the burden in the second half year
The field of household appliances is the traditional strength of GOME Retail, the Group’s strategic focus in the coming period will focus on the main business with the vertical model. GOME will focus on retail sales of household appliances and consumer electronic products, based on the Company’s years of experience in the retail field, relying on a large number of offline stores throughout the country and its existing supply chain and after-sales and other infrastructure, to form five main profit models: exhibition (offline boutique experience), marketing (online and offline omni-channel self-management + sharing supply chain), integrated solutions for home electronics products, extension products for wide scope home appliances and value-added services (delivery, after-sales, extended warranty, paid membership operation, etc.), in which the separation of exhibition and sales and adding the new offline display service charging model would benefit our revenue structure optimized. The effect of the transformation has been shown in the 1H 2022, the Group’s consolidated gross profit was RMB2.4 billion, and the consolidated gross profit margin was approximately 19.81%, increased by 5.5 percentage points as compared to the corresponding period last year.
By closing inefficient stores and expanding franchised stores, GOME will comprehensively optimize the store network layout, strengthening the cost reduction in the second half of the year. Maintaining the coverage of offline stores, the number of offline stores was reduced by 370, and the Company plans to close 30%-35% of inefficient businesses’ self-operated stores in the future. Unrelated or loss-making businesses will be spun off, sold, or discontinued, and investment in expensive businesses will be gradually reduced. And since Q2, GOME has optimized personnel allocation, improved employees’ quality and professionalism, and effective control the Company’s salary costs.
Offline stores optimized and upgraded, and the new model helps regain market share
The Group will build an all-scenario and omni-channel provider of O2O appliances and consumer electronics retail by strengthening technology empowerment and comprehensively improving the operation quality of stores. While retaining 700 high-quality and efficient self-operated stores, the Group plans to add 100 superior city pavilions to optimize the grid-based model and improve the existing sales per unit area; with Gome’s high-quality management model and supply chain, the Company will rapidly expand its network layout to cover the first to sixth tier cities nationwide with grid-based coverage to quickly regain its original market advantage.
In addition, since July, stores in Chongqing, Wuhan, and other cities have begun to implement the new mode of operation. The new model stores will implement a separate exhibition and sales model to meet consumers’ needs for a better product experience in reality. The new model stores focus on four dimensions: function, category, scenario, and sales per employee to provide customers with a more complete service experience. In terms of function, large stores and small stores focus on differentiation and further refinement of product categories; in terms of category, the Company focuses on high-end products and offline scenes of rigid demand to provide consumers with a more intuitive product experience; in terms of scenery, systematically planned store lines and more interactive demos display are used for specific products. Through single-brand multi-dimensional reuse enhancement, further improving efficiency and the sales model, will help to significantly improve sales per employee. The new model is expected to improve the sales per unit area and sales per employee of the stores by more than 40%.
Comprehensive upgrade of supply chain model, empower quality products
To enhance the selection and sales capacity of quality products, upgrading the supply chain model is an indispensable part. In the self-sourcing & underwriting custom model, based on the traditional supply chain, the Company will further increase the proportion of underwriting customization to achieve product differentiation and enhance the profitability of the supply chain. Further, the Company will deepen cooperation with suppliers, implement differentiation strategies, and more precise brand positioning; strengthen in-depth cooperation with head brands and enrich waist brands to empower the selection and sales of quality products and improve inventory turnover, which will be conducive to subsequent business development.
Optimize asset structure, promote enterprise structure transformation and management upgrade
To increase the amount of tangible assets held by GOME, the Company acquired the property rights of two properties at a significant discount, GOME Commercial Capital and No. 9 Xiangjiang, which will be built as offline shopping and experience centers. The acquisitions will significantly improve the Company’s asset adequacy ratio, enhance the confidence of financial institutions in supporting the Company’s business, facilitate the Company’s future refinancing and improve its core competitiveness.
Moreover, to further professionally improve the profitability of the full-service closed loop of pre-sale, mid-sale, and after-sale and value-added services, the Company plans to acquire from the Controlling Shareholder part of the equity interest of Anxun Logistics at a substantially preferential price. Anxun Logistics has a competitive advantage in the field of large warehousing and distribution, which is a scarce advantageous asset in the market. Anxun Logistics’ third-party business accounts for over 48% of its revenue and has good profitability and solid cash flow. It is expected to maintain an average growth rate of 20%-40% in the next five years and a net profit growth rate of over 40%. After the acquisition, it will become a new profit growth point for the Company.
Strengthen technology empowerment and strategic cooperation, Actively take social responsibility
In the first half of 2022, the Company entered into strategic cooperation with Huawei, Tencent, and Alibaba Cloud respectively, focusing on digitalization and big data/cloud for deep technology empowerment. The cooperation with Huawei focused on the digital enhancements of retail business. The strategic cooperation between the Company and Tencent covered big data & cloud, internet technologies, advertising and marketing, and smart stores. Reaching the strategic cooperation with Alibaba Cloud, the two parties will cooperate in the retail business, supply chain, marketing, operations, etc. By strategic cooperation with the top domestic Internet companies, and consolidating the resources and strengths of partners, technology empowers the actual business operation, will expedite the digital and intelligent transformation of approximately 4,000 stores of the Group in China, help to increase the overall scale of the Group, enable the Group to achieve low-cost traffic and precise marketing, enhance consumers’ online and offline cross-scenario experience.
During the Reporting Period, affected by the outbreaks of the pandemic, the Company is facing an uncertain external business environment. Nevertheless, the Group has always shouldered its social responsibilities by carrying out grid-based business management through its online platform “FUN” APP and offline network of approximately 4,000 GOME stores and developed the role of backbone enterprises internal and external. Internally, the Group strived to protect over 50,000 employees in 776 cities by implementing effective prevention and control measures. Externally, the Group was committed to securing stable supply and prices at all outlets and online platforms during the pandemic, ensuring healthcare products and daily necessities at normal prices. The Group took the initiative to maintain adequate supply and boost consumption during the pandemic by offering to deploy sufficient supplies to regions severely affected.
Regarding outlook and prospects, the GOME management team said: “In the future, the Company will efficiently use the omni-retail ecological sharing platform, focus the vertical model on the main business and improve operational efficiency as the main strategic target in the next period, reorganizing the business segments and optimizing the asset structure, in order to cope with the impact of unfavorable market factors such as the pandemic, improve the profitability of the Company; using technological means to help the digital transformation of enterprises and improve consumer service experience. We will promote strategic focus in the existing development process, quickly realize the Company’s operational elements, continue to improve operational efficiency, and enhance profitability. At the same time, strengthen interaction with external strategic partners, carry out more in-depth cooperation, and continue to empower each other in terms of goods, services, traffic, and technology, which is expected to achieve better profitability in 2023, reach the best level in history in 2024, and exceed the best level significantly in 2025.”
About GOME RETAIL HOLDINGS LIMITED
GOME RETAIL HOLDINGS LIMITED was listed on the Hong Kong Stock Exchange in July 2004 (Stock Code: 493HK). Founded in 1987 in China, GOME is a leading technology-driven, experience-based, entertainment-oriented, and socialized “Home . Living” technology retail service provider in China. Under the strategy of “Home . Living”, GOME strengthens its technology empowerment and focuses on the retail of home appliances and consumer electronic products as its main business. Moreover, five main profit models have been formed: exhibition (offline boutique experience), marketing (online and offline omni-channel self-management + sharing supply chain), integrated solutions for home electronics products, extension products for a wide scope of home appliances, and value-added services (delivery, after-sales, extended warranty, paid membership operation, etc.).
Please visit our website for more information: www.gome.com.hk
Topic: Press release summary