Crocodile Garments’ profit has plunged as the apparel retailer was caught in “the centre of whipsaw’’ in Hong Kong and a depressed Mainland China market.
Revenue in the year to July 31 fell from HK$502 million in 2014 to $405 million this year; gross profit was $252 million, down from $303 million.
Retail sales revenue slid by 22 per cent to $354 million, with a loss of $44 million.
“Against the backdrop of poor market sentiment, deep sales discounts offered by competitors to grasp the already-underwhelming retail market and protracted sales network restructuring taken by the group, the Garment and Related Accessories Business segment plodded on through a nadir in the year ended July 31,” the company said in its stock exchange filing.
With the property Investment and Letting Business figures added in, the total income attributable to the owners of the company was $49 million – less than half 2014’s figure of $106 million.
Crocodile Garments has 87 shops in the Mainland (35 fewer than a year earlier), including 21 self-operated shops (down 27) and 66 franchisees (down four).
“The Garment and Related Accessories Business segment was operating under an extremely intricate environment in the mainland. The economy was facing an accelerating downside risk as evidenced by the deteriorating data released. To balance the slump of growth in exports and productions, the mainland government planned to boost domestic spending through the wealth effect created by a prosperous stock market; however, it was derailed by the abrupt plunge. The consequential murky economic ambience battered the retail market sentiment and the consumption power of general public further, which materially curbed the sales and gross profit margins of the segment,” the company explained.
“As a cushion against the above tailspin, the group had rationalised its sales channel to ratchet up the brand presence and, at the same time, constrain rental expenses. Stringent inventory discipline had been enforced to keep the stock on hand relevant and fresh.”
Hong Kong, the group’s home base, is “at the centre of whipsaw” the company said.
“On one side, Hong Kong economy is vulnerable to the stumbling investment and consumer spending whereas on the other side, at the heels of a strong US dollar, the appreciation of the Hong Kong dollar under the pegging mechanism could kindle savage corrections in asset markets. Needless to mention the persistent social disputes, the business environment for the group in Hong Kong is formidable. To mitigate the above negative impact, the group will hasten the restructuring of its shop portfolio to enhance the operating efficiency.”
Crocodile Garments said the outlook of the global economy is bleak in the wake of loss in momentum of the mainland, the world’s major growth engine for the past decade.
“Giving the beleaguered retail sector, the group has reined back sales channel inventory [in the mainland] and fortified supply chain management. Moreover, the group will reorganise its sales channels and merchandise mix.”
