Sales rise marginally at apparel retailer Giordano in Q1 (Hong Kong)

Giordano International Limited released its 2012 first quarter operations update. The Group’s sales for the first quarter of 2012 increased by 1.2% to HK$1,432 million from HK$1,415 million in the same period last year.

The relatively low sales growth over the first quarter of 2012 is partly impacted by a high base in the previous year. The first quarter of 2011 was almost a “perfect quarter” in our key markets in terms of weather, particularly in Mainland China.

To put sales in the first quarter of 2012 into a more normal context, sales were 27.5% higher than the first quarter of 2010.

Sales in Mainland China decreased by 9.1%, as demand weakened and franchisees reduced inventory levels accordingly. In Hong Kong and Taiwan, sales grew by 8.0% compared to the same period last year. Sales in the rest of the Asia Pacific region, mainly Singapore, Malaysia, Indonesia and Thailand, grew by 5.6% compared to the same period last year.

During the fourth quarter of 2011 and first quarter of 2012, the Company’s suppliers increased the prices of merchandise for the 2011 fall-winter collection resulting in our merchandise costs increasing by 13.9% over the previous year; this was largely due to increases in fabric prices earlier in 2011.

The Company has maintained strong price disciplines across its markets in order to protect its gross margin and brand positioning; cost increases have been more than fully recovered. However, the Group’s gross margin decreased by 1.2 percentage points to 57.0% year on year and gross profit decreased by 0.9% to HK$816 million from HK$823 million in first quarter 2011. Nevertheless, reductions in raw material prices during 2012 will reduce these cost pressures from the second quarter going forward.

Inventory turnover on sales was 29 days, an increase of 5 days from the same date last year but a reduction of 10 days from the 39 days at 31 December 2011. The increase in inventory level compared to last year reflects higher inventory costs and provisioning for new shops. Efforts to reduce inventory further are ongoing.

Net cash and bank balances increased by HK$301 million to HK$1,510 million during the quarter (31 December 2011: HK$1,209 million). The Group continues to generate strong cash flow driven by the reduction of inventories.

“During 2011 we delivered record sales and earnings for the Group on the back of solid and sustained growth across all our markets. We have now raised the bar in terms of sales and earnings performance and are working hard to improve these results.

“This year we see strong headwinds in our markets, particularly Mainland China, which make this goal particularly challenging” remarked Dr. Lau Kwok Kuen, Peter, Chairman and Chief Executive of Giordano.

“On the back of a cooling economy, customer demand is down across our Mainland China markets. Despite good progress in reducing inventory levels, there is stilla lot of oversupply in our market place. This is making it more difficult to maintain margins and to grow revenues as discounting by our competitors is widespread.

“Nevertheless we continue to maintain our discipline regarding pricing and inventory management and this is delivering strong operating cash flow. At the same time we continue to develop our organization in China. The decentralization of management is generating greater initiative in local marketing and branding as well as enabling us to react more quickly to customer taste and requirements in different regions” added Dr. Lau.

“Mainland China remains the key market for the Group’s growth strategy. We continue to work with our franchisee network to support them with improved merchandising and marketing. Our design centre in Dongguan is now developing products directly aimed at the China market.

“Despite weaker demand and intense price competition, we remain confident that we can face down the headwinds in this major market and deliver steady profitable growth going forward. Furthermore we continue to see significant profitable growth across other markets, particularly Hong Kong, Taiwan and developing markets in South East Asia such as Indonesia.

“Our innovative and exciting partnership with Disney in Greater China shows that our product design and marketing expertise is continuously improving. Management teams in these markets are well placed to take advantage of economic development and growth in these regions on the back of strong operational excellence and effective work processes already established in these businesses” continued Dr. Lau.

Dr. Lau concluded, “So far this year it has been challenging to build on the “perfect first quarter” we had in 2011 and headwinds have been slightly heavier than expected; nonetheless we continue to deliver profitability and to reduce our inventory levels from the levels we had at the year end.

“We have initiated marketing and merchandise campaigns across our China business. We continue to improve business processes and operating efficiencies across our operations and remain optimistic that Giordano will continue to deliver profitable growth in 2012.”

Giordano is a leading international retailer of men’s, women’s and children’s apparel under the brand names Giordano, Giordano Ladies, Giordano Junior, Concepts One and BSX.