Chinese Supermarket Chain Jiajiayue Reports Declining Profits in First Half of 2024
BEIJING, Sept. 4, 2024 – Jiajiayue, a leading supermarket chain in China, reported a decline in net profit for the first half of 2024, citing increased opening costs, transportation expenses, and store closures as key factors. The company’s net profit fell by 8.81% year-on-year to 1.7 billion yuan (approximately $235 million).
Despite the profit decline, Jiajiayue’s total revenue increased by 2.98% to 93.62 billion yuan($12.9 billion) in the first half. However, the company’s gross profit margin decreased by 0.52 percentage points to 23.57%, while its net profit margin fell by 0.2 percentage points to 1.83%.
During the earnings call, Jiajiayue’s Chairman and General Manager Wang Peihuan attributed the decline in profit to several factors. He highlighted the significant increase in opening costs for new stores, which are still in their initial stages of development. Additionally, the companyexperienced a rise in transportation expenses during the reporting period. Jiajiayue also implemented a store closure optimization strategy, which contributed to the profit decline.
The company’s sales expense rate of 17.59% is mainly affected by the initial costs of new stores opened in 2023,the increase in transportation expenses during the reporting period, and store closure optimization, Wang explained. As new stores enter their maturity phase, the sales expense rate will gradually decrease.
Wang also addressed concerns from investors regarding the company’s high sales expense rate and low research and development (R&D) expense rate.He clarified that the sales expense rate for comparable stores within the supermarket segment had actually decreased compared to the previous year. The company’s R&D expense rate, he explained, is relatively low due to its reliance on external services and system purchases for information technology development, rather than solely relying on internal R&D.
The company’s negative net cash flow from financing activities was attributed to a reduction in debt and the repayment of maturing discounted bills. The negative net cash flow from investing activities was primarily due to fixed asset investment expenditures during the reporting period.
Jiajiayue’s stock price has been under pressure in recent months,declining by 42% in 2024. Wang expressed confidence in the company’s ability to improve its performance and provide stable returns for investors. He highlighted the company’s recent efforts to stabilize expectations and boost stock prices through measures such as a capital increase by the major shareholder and share buybacks.
Looking ahead, Jiajiayue plans to focus on improving efficiency and profitability through store optimization, operational adjustments, and efficiency enhancements. The company also intends to pursue the development of new stores and business models in a controlled and quality-driven manner.
Despite these efforts, Jiajiayue’s stock price closed at7.49 yuan on Sept. 4, representing a further decline of 0.79%. The company’s total market capitalization currently stands at 48 billion yuan ($6.6 billion).
Analysts remain cautious about Jiajiayue’s future prospects, citing the competitive nature of the Chinese retailmarket and the challenges of navigating a slowing economy. However, the company’s commitment to improving efficiency and expanding its reach could provide opportunities for growth in the long term.
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