Trinity performs satisfactorily under adverse conditions (Hong Kong)
Trinity Limited announces the interim results for the six months ended 30 June 2012. The performance of the Group’s retail stores is subject to seasonal fluctuations and certain holiday seasons. Management has determined the operating segments based on reports reviewed by the senior executive management of the Group that are used to make strategic decisions. Management considers the business from both geographic and business lines perspectives.
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During the period under review, the Group performed satisfactorily under adverse conditions. The Group posted results that were relatively in line with its expectations given the challenges in the market, and it made significant progress in continuing to lay the foundation for future growth – both for the Group and for its portfolio of brands.
Difficult conditions are likely to remain for the second half of the year. While there are positive indications in the medium to long term for the Chinese Mainland luxury sector, softening same-store sales, rising staff costs and increased inventory led to more modest results for the first half of 2012.
The Chinese Mainland economy has shown resilience in the face of the global downturn despite a slower pace of growth. Its luxury sector, including menswear, is not always immune to economic challenges, but its long-term potential is strong given that disposable income – and hence spending power – will continue to rise. In the short term, we will remain vigilant on costs while continuing to invest in order to build a solid foundation for future growth when opportunities arising from a global economic turnaround present themselves. The Group is confident that it has the correct long-term business strategy and prospects to succeed.
Revenue increased in the first half of 2012 by 13.4%, driven by moderated same-store sales growth and continued store expansion in Greater China as well as licensing income and retail revenue from Europe. Same-store sales for Hong Kong & Macau and the Chinese Mainland increased by 13.6% and 5.9% respectively. But Taiwan recorded a negative growth of 12.7%. Revenue from the Chinese Mainland contributed 59.8% of the Group’s total revenue from Greater China.
Revenue from Greater China grew by 8.4%, compared to the same period in 2011. After acquiring 100% interests in Gieves & Hawkes Group in May 2012, the Group now owns three global brands, Cerruti, Kent & Curwen and Gieves & Hawkes, which accounted for approximately 91.0% of the Group’s revenue.
The Group acquired Gieves & Hawkes Group at an estimated aggregate consideration amounted to approximately HK$719.9 million, including a paid initial consideration of GBP32.5 million (approximately HK$402.3 million), and a contingent consideration of HK$317.6 million payable over 18 years which is subject to a cap of HK$ equivalent of GBP60.0 million (approximately HK$753.3 million).
The Group’s gross margin decreased by 1.6 percentage points in the first half of 2012 to 79.2%, compared to 80.8% in the first half of 2011. The decrease in margin reflected a cyclical slowdown in the market.
Selling and marketing expenses, expressed as a percentage of revenue, increased from 41.3% to 44.5% year on year. The increase was attributable to higher investment in brand building, advertising and promotion expenses which increased from 4.8% of revenue in the first half of 2011 to 6.1% in the first half of 2012. Higher store operating expenses, especially shop staff wage adjustment in the Chinese Mainland, were also a contributory factor.
Administrative expenses decreased from 17.8% to 15.3% of revenue year on year. This was mainly due to adjustment on staff related compensation. Operating profit increased slightly from HK$298.3 million to HK$303.6 million as a result of an increase in revenue, but this was partially offset by the impact of lower gross profit margin and an increase in operating expenses.
Retail revenue growth in the Chinese Mainland and Hong Kong & Macau were 9.3% and 9.6% respectively, while the retail market in Taiwan recorded negative growth of 4.8%. Cerruti’s worldwide licensing businesses and retail operations in Paris contributed approximately HK$64.9 million of revenue in the first half of 2012, compared to HK$39.0 million in the second quarter of 2011 since its acquisition in April 2011. Revenue from Gieves & Hawkes Group in the United Kingdom in the first half of 2012 was approximately HK$37.6 million since its acquisition in May 2012.
The Group recorded a slight decline in its retail gross margin in Greater China to 79.3% due to the weakened market environment. The retail gross margin for Hong Kong & Macau, the Chinese Mainland and Taiwan was 80.2%, 79.4% and 74.5% respectively.
The retail and licensing gross margin for Europe were 58.4% and 100.0% respectively.
Building Brand Equity as the Group continues to develop its global portfolio of high-end to luxury menswear, creating brand equity is more important than ever in an increasingly competitive retail environment.
The Group is principally engaged in the retail and wholesale of menswear under self-owned brands and licensed brands in the Greater China Region, retailing and licensing businesses in Europe, and its jointly controlled entities are retailers of luxury fashion and accessories in South Korea and Southeast Asia.
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