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Gome Reports Net Profit Increase

With the competition among Chinese home appliance retailers heating up this year, Gome Electrical Appliances Holdings Ltd reported a year-on-year net profit rise of 4.5 percent for the first half of 2005.

Gome, China's largest home appliance retailer, experienced a net profit of HK$224.2 million (US$28.74 million) for the January to June period, compared with HK$214.6 million (US$27.6 million) a year ago, the Hong Kong listed company said on Tuesday.

The company proposed an interim dividend of 4.2 HK cents a share, it said in its interim report.

Its revenue during the first six months rose 32 percent to HK$7.8 billion (US$1 billion) from HK$5.9 billion (US$760 million) for the same period last year.

But Gome's performance is not all good news.

"The results are much lower than market expectations," said Sun Luan, a market analyst from China Securities.

Affected by the rather slow performance, Gome shares fell 6.9 percent to HK$5.4 (69 US cents) yesterday.

"The retailer has expanded its networks rapidly, but its revenue and profit growth could not catch up with the expansion rate," Sun said.

Chinese home appliance retailers are competing for bigger market share through network expansion. Gome opened 56 new outlets in the first half and plans for another 80 in the second half.

By the end of June, it had 169 stores with a sales area of over 617,000 square metres, compared with 96 stores and a sales area of 338,000 square metres a year ago.

"The financial performance was affected, to a certain extent, by sales performance at some of the newly opened stores and rise in operating expenses," Gome explained in its report.

Sales at some new stores in smaller and less affluent cities are not growing quickly, due to a smaller market size and the longer time required to fully develop the market, it said.

In addition, its first-half selling expenditure rose to nearly HK$474 million (US$61 million), up from HK$292 million (US$37.6 million) for January to June last year.

The rising expenditure is mainly due to higher rental expenses in major cities, the company said.

However, Gome will continue to rapidly expand its networks to fend off rival chains and new competitors in the sector.

(China Daily August 18, 2005)

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