SUPERMARKET CHAIN Sheng Siong posted net profits of S$16.8 million for 1Q2012, up 73.7%, year-on-year, thanks to gains of S$10.5 million from disposing its old warehouse.
The Group’s 1Q2012 revenue increased 4.0% to S$159.8 million, mainly due to higher store sales. Sales from stores operating for a full quarter had improved by 2.0%.
Two new outlets were opened in Nov 2011. The first at Woodlands Industrial Park and the second at Thomson, while an outlet in Katong was closed in September 2011.
Group gross margins had dipped by 2.1 percentage points due to intense pricing competition from NTUC and Dairy Farm’s Giant.
On a positive note, 1Q2012 gross margin has improved over that for 4Q2011 as revenue growth outpaced an increase in cost of sales.
In January 2012, the Group completed the sale of its old warehouse at Marsiling Road for S$15.0 million, after shifting to its new warehousing and distribution centre to Mandai Link.
Excluding the one-off gain from the sale and the impact of under provision of prior year’s tax amounting to S$1.6 million in relation to the disposal of available-for-sale investment in FY2010, 1Q2012’s net profit would have been S$8.0 million.
That's lower than 1Q2011 net profit of S$9.7 million.
The warehouse sale boosted cash reserves, which doubled to S$149.1 million.
The Group has signed leases for two new outlets totaling 19,000 sq ft at New World Centre and Toa Payoh.
With the opening of these outlets in 2Q to 3Q 2012, the Group’s total retail area is expected to expand by about 5.5%.
Its CEO, Mr Lim Hock Chee, and finance director, Mr Wong Soong Kit, met investors at its 1Q2012 briefing yesterday. Below is a summary of questions raised at the meeting and the management’s replies.
Q: Do you expect your admin expenses to go up, given the recent initiatives from the Ministry of Manpower?
We will first be impacted by the levy on foreign workers, followed by the minimum wage increase. The largest part of our admin expenses is in salaries. We are trying to use more Singaporean part-timers. Foreigners cost the same as locals.
Our worker salary is pegged with profits, and is driven by variable bonuses across the board. A ballpark estimate of our salary expense is 60% in fixed salaries, and 40% variable. It really depends on how well we do that year.
The depreciation component of admin expense, however, will be higher with our new warehouse.
If you strip off last year’s IPO expense, you will find that our admin expense is really quite stable, because of our highly variable salary structure.
Q: Do you have stock adjustment this quarter?
A good gauge of adjustment for stock pilferages and leakages is 0.3% of sales.
Q: Will your margins improve post-CNY price competition?
Competitors are still aggressively opening new stores. So the price competition is still there. Purchasing directly from local food sources saves us 10% in cost, but the competition is aware of our cost cutting and has been rolling out promotions aggressively.
For example, today's ad from Giant features the sale of boneless chicken thighs at S$3.90 per kg and that is very close to our direct purchase import cost. We need to run promos in conjunction with the competition so as not to lose customers.
Q: Do listing disclosures affect your margins? Is it still possible to generate your pre-IPO gross margin levels of 22%?
We were mentally prepared for greater price competition due to the publicity from our listing. We are constantly on the lookout for new product sources for direct purchase opportunities that lower our cost. I believe we can still improve margins.
Q: How have shop rental trends been affecting you?
It is now easier to close a deal for shop leasing space. We are actively pursuing the e-commerce route to address the challenge we face in securing retail lease space. We are also in talks with potential JV partners in Malaysia to open retail stores there.
Related story: SHENG SIONG: Warehouse Automation Improves Productivity
