Gome 1Q17 - SSS decline narrowed with GPM expansion
Gome recorded NP up 2.2% to RMB137m on sales up 14.4% in 1Q17. Salesaccounts for 21% of full year sales (DBe) vs 22%/20% contribution for1Q15/1Q16. SSSg for its physical stores narrowed from 7% decline in 4Q16 to4%-5% decline. On a like-for-like basis, offline business declined 6%-7%.Consolidated GPM expanded 0.45ppt to 17.46%, mainly from suppliers(0.2ppt) and installation fees (0.1ppt). Its net finance increased 269% toRMB132.6m mainly due to the newly issued USD bond in 1Q17.
Key takeaways from conference call
SSSg in 1Q17 was -4-5%, narrowing from 7% in 4Q16 and largely in line withmgmt’s expectation. This is mainly due to renovating stores. The renovatedstores saw 8% SSSg. It expects the SSSg will see continuous improvement.GPM of 17.5% on a full year basis remains intact. Mgmt commented that rawmaterial cost hike does not impact its GPM as suppliers can digest the costhike by adjusting product functions. Its differentiated products mix (normallyhigher margin, e.g. Internet TV) increased from 47% to 49%.
Total GMV for online grew 102.07% (Mgmt targets +100% for the full year)and online revenue also grew 41.7%. Third-party accounts for 60% includingfinance. Take rate was around 3%. Online loss narrowed to RMB190m in1Q17. Management expects a RMB700M loss in 2017, similar as last year.Online GPM was 4% which was slightly trending better thanks to integratedonline/offline logistics, marketing expense.
The net operating cash flow for 1Q17 was - RMB200m, mainly because theystocked up for the internal purchasing on 18 April; otherwise, it would bepositive. Mgmt commented that they need RMB4bn to maintain a healthyworking capital and they have RMB13.7bn cash on hand.
Mgmt budgeted RMB1bn capex for the normal needs and in 1Q17 investedRMB200m. This is mainly on 1) store renovation. They plan to remodel 120stores years (150 ones last year). 2) A new logistics center in Chengdu with43sqm. It targets to have 500sqm logistics area (300sqm currently), amongwhich 200sqm are self-used warehouse. It continues to invest into logisticsgradually in the next five years. The new bond issued in March is mainly forinternational procurement from Japan, Europe and other developed markets tocater for high end demand. Thus total capex is expected to reach RMB1.5bn.