Retailing, Franchising, and Consumerism Business Intelligence in China

Gome Nixes Real Estate Joint Venture

Chinese electronics and home appliances retailer Gome has published its unaudited performance results for first three quarters of 2011, stating that from January to September 2011, its total revenue increased by 18.01% year-over-year to CNY43.983 billion, while its net profit increased by 24.38% year-over-year to CNY1.791 billion.

The report also said that from July to September 2011, the company's revenue was CNY14.176 billion, a year-over-year increase of 14.35%, but a quarter-over-quarter decrease of 12.1%; while its net profit reached CNY539 million, a year-over-year increase of 12.8%, but a quarter-over-quarter decrease of 23%.

During the reporting period, Gome's adjustment to store strategy brought certain achievements and its gross margin increased by 1.26% year-over-year to 18.85%. However, its marketing and management expense largely increased by 30.9% and 20.8%, respectively.

According to the report published by Gome, the company will terminate its plans to establish a real estate subsidiary, which caused major stock price volatility. Gome said due to the recent uncertainty of macro economy, Gome Beijing and its two partners had agreed to terminate their agreement on setting up a real estate joint venture on November 29, 2011.

Public files showed that on September 27, 2011, Gome announced plans to invest CNY90 million to set up a real estate joint venture, which will be responsible for creating more store resources and building storage and logistics bases in the second- and third-tier cities in China, to reduce overall operating costs. The stock price of Gome saw consecutive dives following the announcement.

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