A Gome Electrical Appliances Holding Ltd store in Shanghai. The company on Monday announced plans to expand aggressively in second-tier markets.[Photo/Bloomberg]

Electronics retailer posts 30% rise in profit as it adds new stores

HONG KONG - Gome Electrical Appliances Holding Ltd, China's second-largest electronics retailer by sales, is seeking to increase annual sales by 15 percent in the coming years, President Wang Junzhou told reporters in Hong Kong on Monday.

The company aims to expand its store network to 2,400 by 2014, up from 938 at the end of June, Wang said.

Smaller cities will be the focus in terms of new stores, Chairman Zhang Dazhong said.

"The group will endeavor to further optimize its store network in first-tier markets, while actively expanding into second-tier markets," Zhang said.

"The group will penetrate into third-tier and fourth-tier markets, which are economically developed, when opportunities arise," he said.

Gome posted a 30 percent gain in first-half profit after opening stores to meet demand boosted by rising wages.

Net income climbed to 1.25 billion yuan ($196 million), the Beijing-based retailer said in a statement to the Hong Kong Stock Exchange on Monday. Sales advanced 20 percent to 29.8 billion yuan.

Zhang became the company's chairman after the unexpected resignation in March of former chairman Chen Xiao, marking the end of a long battle between Chen and the company's founder, Huang Guangyu, who is serving a 14-year jail sentence for bribery and other illegal business practices.

The company, which operates under two major brands, Gome Appliances and China Paradise, closed 19 underperforming stores in the first half but opened 131 new stores, bringing the total number of stores to 938 at the end of June from 826 a year earlier.

The company is adding outlets to narrow the gap with larger rival Suning Appliance Co Ltd in an electronics and appliances market that is forecast to surge 70 percent to 2.14 trillion yuan by 2015 compared with 2010, according to London-based researcher Euromonitor International.

Suning opened 140 new outlets on the Chinese mainland and five stores in Hong Kong from January to June. At the end of June, it operated 1,488 stores - 1,451 on the mainland, 28 in Hong Kong and nine in Japan.

Gome is developing regional logistics centers to support the expansion of its store network and the development of its e-commerce business, it said in its statement.

Shares of Hong Kong-listed Gome rose 3.66 percent to HK$3.4 (44 US cents) on Monday.

The company's stock has risen 21 percent this year, compared with a 14 percent loss for the benchmark Hang Seng Index.

Per capita urban disposable income rose 13.2 percent in the first half and rural cash incomes climbed 20.4 percent, China's statistics bureau said in July.

Gome's same-store sales, which strip out the effect of outlets open less than a year, rose 7.4 percent in the first half, according to the statement.

Gross margin widened to 18.3 percent at the end of June, compared with 17 percent a year earlier, it said.

Suning reported a 25.4 percent increase in its net profit to 2.47 billion yuan in the first half of the year. Suning's sales grew 22.7 percent to 44.2 billion yuan, cementing its leadership in the Chinese market.

Bloomberg News