Hong Kong-listed shoe retailer Daphne International Holdings has issued a profit warning as it shutters nearly 200 stores.
Daphne operates the Daphne and Shoebox retail brands in Mainland China.
The company has reported the year on year, same store sales fell 16.9 per cent in the first half of 2015, and by 17.7 per cent in the second quarter.
In the first six months of the year, Daphne closed 181 stores – 117 directly-managed and 64 franchised stores, the majority in the second quarter. But it still has 6221 points of sale.
“During the first half of the year, the consumer sentiment remained soft, yet the erratic weather with delayed spring and summer seasons further dampened the appetite for shopping. This led to intensified competition in the mass market segment for ladies’ shoes as some aggressive peers offered deep discounts much earlier,” the company said in its quarterly sales filing.
“However, the group upheld its discounting policy until the adverse effect of the weather subsided.”
Turnover of the Core Brands business recorded a decline of low-teens percentage year-on-year for the first half of the year, as a result of a negative same store sales growth performance and net store closures.
“In an attempt of further market segmentation, the group refined Daphne product range into seven product series in this spring/summer season to broaden its appeal to customers and to increase its differentiation from the competitors.”
Daphne International also added one of the top young actresses in Mainland China, Cecilia Lau, to its group of spokespersons (including the popular Korean actress, Jun Ji-Hyun, and pop singer and actor, Nicholas Tse) to endorse one of its core product lines – Cosmopolitan.
“By increasing the association of the product lines with the spokespersons, it helped build a strong brand image, and improved the marketing efforts,” the company said.
Gross profit margin expanded due to the improved sales mix during the first half of the year, however, the decrease in sales exerted significant pressure on operating margin and the inventory management.
Shareholders were warned not to expect good news when the financial statements for the first half are released.
“For the six months ended 30 June 2015, the group is expected to have a significant decline in profit. The decline in profit was mainly attributable to a decline in same-store sales, decreased sales and negative operating leverage which resulted from the high fixed-cost structure of the group’s retail operation.”
The group will now focus on boosting sales, inventory management, expense control and accelerating its eCommerce growth and will step up its promotional activities for the remainder of the summer season.
Daphne is also working on an expansion plan for its eCommerce business and will allocate more resources to fuel its growth and O2O initiatives, which will include deepening its collaboration with various eCommerce platforms.
“While the performance for the first half is below expectations, the group endeavours to improve its performance for the second half of the year,” it said.
