Easing rents, the closure of unprofitable stores and a trimmed-down inventory all helped Oriental Watch Holdings record a 10-fold increase in profit in its latest quarter.
In the six months to September 30, Oriental Watch increased its post-tax profit from HK$4.12 million last year to $45.93 million, on sales down marginally from $1.545 billion to 1.508 billion. Same-store sales rose 14 per cent year on year.
At the end of the period the luxury watch retailer operated 63 retail and wholesale points (including associate retail stores) in greater China: 47 in Mainland China, 12 in Hong Kong, three in Taiwan and one in Macau.
Chairman Yeung Ming Biu said the return of mainland tourists and improving business confidence.
“Most importantly, the stabilising sales performance along with rent adjustment has also become one of the key drivers for the group this year, which provided greater improvement in profitability with less rent burden suffered compared to the past few years.”
During the quarter, the company’s rent costs fell by 26 per cent to $84 million, now accounting for 36 per cent of overall operating expenses, compared with 45 per cent in the same period last year.
“The group has successfully negotiated better rental rates and more flexible leasing terms for the lease renewal,” he said. “In addition, regular internal assessment on the performance of all retail stores and closedown of high-rent yet non-performing stores are also the group’s strategy for better resources allocation.
“The group will continue to closely monitor the store performance and its efficiency and hope the above measures together with the rent adjustments can improve profitability of each store in the forthcoming years.”
Inventory management
Yeung Ming Biu said careful monitoring of inventory of high-ticket items and reordering only when predetermined stock levels were reached had seen inventory cut by 10 per cent over six months.
Meanwhile, Swiss watch exports by value increased by 4.1 per cent into Hong Kong and by 17.2 per cent into Mainland China between January and September, indicating that demand for luxury watches has rebounded.
“Looking ahead, the group remains cautiously optimistic on the business outlook of the luxury goods market and expects retail sales in Hong Kong will hold stable amidst the sustained recovery in visitor arrivals and the resilience of local consumption demand,” he said.
Same-store sales growth in China rose 14 per cent increase during the quarter.
“On the other hand, the retail market in Hong Kong has begun to turn up after having bottomed out and these have provided good preconditions for the group’s development in Hong Kong,” he concluded.