HONG KONG Fashion retailer I.T. Limited saw its first-half profit plunge on weaker sales and higher operating costs.

I.T said that net profit for the six months ended Aug. 31 dropped by nearly 77 percent to 28.1 million Hong Kong dollars, or $3.6 million at current exchange rates. The Hong Kong dollar is pegged to the U.S. dollar.

The company, which just opened a branch of Galeries Lafayette in Beijing in partnership with the French retailer, said it struggled in a difficult business environment as it attempted to compete with aggressive discounting by its competitors in Hong Kong and China.

Operating profit was 60.7 million Hong Kong dollars, or $7.8 million, less than half the 146.7 million Hong Kong dollar, or $18.9 million, operating profit reported in the year ago period. The company said it saw increased costs from staffing and rent, particularly in China.

Total revenue declined by 0.9 percent to 2.9 billion Hong Kong dollars, or $374 million, while total retail sales in Hong Kong – which makes up about half of the retailer’s total sales – dropped by 7.1 percent. Retail sales in mainland China, I.T.’s other major market, increased by 14.8 percent. Sales in Japan fell by 23.2 percent from a year ago while sales in other regions, mostly Macau and Taiwan, increased 1.7 percent.
I.T. said that the company’s sales were adversely impacted but gross margins preserved because it avoided discounting, unlike many of its competitors. This was particularly the case in Hong Kong. Gross margin in Hong Kong remained at 59.1 percent but sales fell dramatically. The retailer said it is now adopting a more cautious approach to store network expansion in the city. Indeed, total square footage in Hong Kong declined during the six-month period.

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Sales in mainland China, I.T.’s other major market, actually increased despite the “difficult macroeconomic climate and volatile domestic consumption” during the six month period. The company attributed this in part to “more proactive discounting activities” which narrowed the gross margin to 55.8 percent from 58.1 percent in the year ago period. Despite the difficult environment, I.T. said it believes China continues to be a promising market and is increasing its sales area in the country.
Overall, the company said it remains cautious regarding growth of consumer demand in Asia and expects consumer markets to be “dogged by uncertainties.” It declined to release full-year forecasts.

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