Gome's overhaul helps retailer post 35% net income increase(70316)

Gome says 2010 sales to rebound on new outlets; raises spending

Gome Electrical Appliances Holdings Ltd., whose billionaire founder Huang Guangyu faces bribery charges, said sales will rebound in 2010 as it opens stores to benefit from rising consumer spending.

Gome will increase capital expenditure by as much as 60 percent to 800 million yuan ($117 million) this year, Chairman and President Chen Xiao told reporters today in Hong Kong. Sales dropped 7 percent to 42.7 billion yuan in 2009, the company said today in its earnings statement.

The Chinese government continues to pursue a policy that boosts domestic consumption, benefiting home appliances companies, Chen said. Home appliances sales in 2010 and 2011 will be rising as new apartments are being built.

China extended into 2010 a rural subsidy program to boost purchases of products including televisions, refrigerators, and computers, as part of its stimulus package. Gome, the nation s second-biggest electronics retailer by market value, opened stores and cut debt after securing $431 million of financing.

Shares of Gome rose 2.1 percent to HK$2.90 in Hong Kong, before the earnings were released. The stock has gained 2.8 percent this year, compared with a 0.3 percent gain in the benchmark Hang Seng Index.

Net income rose 35 percent to 1.41 billion yuan, or 0.103 yuan a share, from 1.05 billion yuan, or 0.082 yuan, a year earlier, Gome said today in the earnings statement to Hong Kong s stock exchange. That compared with the 1.43 billion yuan mean estimate of eight analysts in a Bloomberg survey.

Gome, which didn t recommend a final dividend in 2008, also skipped payments for 2009.

Store Openings

Sales and profitability improved in the second half, especially after the company sorted out the financing problems, Ashley Cheung, an analyst at BOCI Research Ltd. in Hong Kong, said before the announcement. Consumer confidence also picked up and spending rose.

Gome is planning a net opening of 80 stores in 2010 after closing 189 underperforming outlets last year. The retailer had 726 stores at the end of 2009, compared with 859 a year ago, the statement said.

The company will allocate resources to develop markets in the second and third-tier cities, it said. There are no immediate acquisition plans, Chen said.

Same-store sales growth in 2010 may exceed a gain of 2.81 percent last year, Chen said. Comparable or same-store sales show how stores are faring without the effect of new outlets.

First-quarter sales are growing positively, Chen said. China s economy remains on an accelerating growth trend.

Chinese Investigation

The company resumed trading in Hong Kong on June 23 following a seven-month suspension after Huang, the largest shareholder with a 28 percent stake, was detained.

Gome said March 1 its mainland unit Gome Appliance Co. was indicted for bribery at the Second Intermediate People s Court of Beijing. Gome Appliance was suspected of the offence between 2006 and 2008, when Huang, also known as Wong Kwong Yu, was the Chinese unit s legal representative, the retailer said March 1, citing a copy of the indictment it received Feb. 25.

Huang was subjected to residential surveillance by Beijing s police on Nov. 18, 2008, before being detained on Jan. 23, 2009 and placed under arrest on March 2, 2009, the retailer said March 1. He was suspected of offences involving insider dealing, illegal operation and bribery by organization, Gome said.

The impact of Huang s case on Gome is limited, Chen said today.

Gome's overhaul helps retailer post 35% net income increase

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