Source | Lingshou ID | lingshouke
Net losses narrowed
Retail companies' 2022 annual reports are gradually being disclosed, with more worries than joys.
Earlier this month, Sanjiang Shopping Club's stock price surged over 48% in just five days, leading gains in stocks like Renrenle, Dongbai Group, and Jiajiayue. This set the stage for its 2022 annual report.
During the reporting period, the company achieved revenue of 4.024 billion yuan, a year-on-year increase of 2.53%; net profit attributable to shareholders of the listed company was 154 million yuan, up 73.95% year-on-year; non-GAAP net profit was 125 million yuan, up 15.14% year-on-year.
From these two sets of data, although Sanjiang Shopping Club's revenue growth is not significant, its net profit growth rate is much higher than the industry average, indicating that last year Sanjiang Shopping Club had strong profitability and cost control capabilities.
For retail companies that have been dormant for three years due to declines in both performance and customer traffic, Sanjiang Shopping Club's financial report injected a shot of excitement. Among Hema's many transformation cases, Sanjiang Shopping Club's Hema stores achieved profitability as early as the end of 2021 and maintained stable profitability throughout 2022.
Sanjiang Shopping Club attributed its profitability in the annual report to its close focus on the company-wide digitalization 1.0 work. It mainly carried out a lot of work, including exploring cooperation, abandoning game-playing, insight into demand, focusing efforts, process reengineering, cost reduction and efficiency improvement, and initiating transformation to support development.
Simply put, this means Sanjiang Shopping Club still regards fresh food as the main profit-improving category, while also focusing on Hema Fresh's reforms to reduce labor costs and increase the gross margin of private labels. It is worth mentioning that Sanjiang Shopping Club received government subsidies of approximately 37.9305 million yuan during the reporting period, accounting for 24.68% of net profit.
Of course, Sanjiang Shopping Club's profitability does not necessarily mean Hema can easily achieve this goal.
Compared with Hema, which is expanding in first- and second-tier cities, the area of stores in Ningbo is about 2,000-3,000 square meters, lower than the standard Hema Fresh stores, and small stores even do not configure Hema's iconic hanging chain system for transporting goods. The reduction in operating expenses, coupled with Sanjiang Shopping Club's own warehousing and logistics configuration, can be said to effectively reduce fulfillment costs and increase profits, thus leading to an increase in net profit.
Sanjiang Shopping Club's transformation has always been impressive, and some industry insiders told Lingshou that Hema may intend to use Sanjiang Shopping Club to achieve listing. Hema's current valuation is between $6 billion and $10 billion. If Hema plans to list on the A-share market, using Sanjiang Shopping Club to achieve listing may be a better strategy.
Hongqi Chain, like Sanjiang Shopping Club, as a regional chain supermarket, also achieved growth.
In 2022, Hongqi Chain's operating revenue was approximately 10.02 billion yuan, a year-on-year increase of 7.15%; net profit attributable to shareholders of the listed company was approximately 486 million yuan, a year-on-year increase of 0.9%. This was affected to a certain extent by a 27.15% year-on-year decrease in investment income from New Net Bank and Gansu Hongqi.
In fact, Hongqi Chain, as a convenience supermarket, has obvious economies of scale. On the one hand, through intensive store expansion, it improves operational efficiency; on the other hand, large-scale procurement brings greater bargaining power, which is the reason it can quickly recover.
Over the past three years, the retail industry has faced huge challenges, with revenue and profits generally showing a downward trend. Except for the above two companies, other companies basically saw their net losses narrow year-on-year.
Among them, Zhongbai Group lost 320 million yuan in 2022, a year-on-year decrease of 1322.6%; China Shunkelong's 2022 revenue was 639 million yuan, with net losses significantly narrowed; Lianhua Supermarket's 2022 revenue was 24.681 billion yuan, with a net loss of 212 million yuan; Aeon's 2022 loss narrowed year-on-year, up to HK$270 million.
As for the reasons for the narrowing of net losses year-on-year, many supermarket companies believe it is due to promoting supply chain construction and cost control, and improving operating profits. Compared with last year when the epidemic was severe, large-scale lockdowns and soaring cargo and logistics costs led to rising costs, this year's return to normal has reduced costs, improved efficiency and profitability, thus achieving a year-on-year narrowing of net losses.
Loss-making companies
On the same day Sanjiang Shopping Club announced its high net profit growth data, Better Life also revised its performance forecast. The latest predicted net profit figure has again dropped significantly, with an expected loss of 2.05 billion to 2.65 billion yuan. As of the close of that day, Better Life's total market value was 5.1 billion yuan.
In 2022, the physical retail industry faced enormous pressure, and Better Life's situation attracted particular attention.
After experiencing business contraction, Better Life had issued a performance forecast on January 16, predicting a loss of 1.2 billion to 1.95 billion yuan, an increase of more than ten times compared with the previous year.
Recently, after lowering its performance forecast again, Better Life stated that as appraisers deepened their assessment of goodwill impairment, combined with the impact of the current external economic environment such as the slow recovery of physical retail consumption, the company made a more cautious judgment on expectations. After full communication with the appraisers, it is expected that the current goodwill impairment amount exceeds the original estimated amount by about 180 million yuan.
As for the news that Better Life was taken over by state-owned capital, it was finalized in the first half of the year. On March 17, Better Life announced that the transfer and registration procedures had been completed. Since then, Xiangtan Industry Investment has become the controlling shareholder of Better Life, and the Xiangtan State-owned Assets Supervision and Administration Commission has become the actual controller of Better Life.
After the state-owned capital took over, the capital pressure was effectively alleviated. However, in terms of operation, strategic adjustment, and other aspects, more professional planning is still needed. At present, Better Life still has advantages in Hunan, such as a large number of stores and a stable supply chain.
Behind the sellout, huge pre-losses, and goodwill impairment, Better Life's terminal sales market has also seen large-scale store closures.
In addition to shopping malls and department stores, since the fourth quarter, it has completely withdrawn from the Sichuan market through closures and transfers, and the Jiangxi market has shrunk significantly to Xinyu, Pingxiang, and Yichun (cities close to Hunan); at the same time, Hunan and Guangxi provinces have also simultaneously closed and transferred inefficient loss-making stores.
In fact, the problems Better Life encountered are common problems in the traditional offline supermarket industry, all facing pressure from declining revenue and customer traffic. Almost the entire offline supermarket industry has fallen into losses. With the overall retail market structure changing, transformation has become crucial.
Jingkelong, which has also been in the "darkest moment," is also in deep trouble. Its 2022 annual report shows that both revenue and profit showed a downward trend, and the loss amount further expanded.
During the reporting period, Jingkelong's operating revenue was 8.661 billion yuan, a year-on-year decrease of 14.2%; net profit attributable to shareholders of the listed company and non-GAAP net profit were both -96.071 million yuan, a year-on-year decrease of 327.5%.
Although Jingkelong has attempted digital transformation, the results are not obvious. The company still faces problems such as declining revenue and profit, reduced dividends, foreign capital reduction, and intensified industry competition. These problems collectively reflect the operational difficulties Jingkelong faces.
In fact, these challenges are not unique to Jingkelong; many traditional supermarkets are facing similar problems.
To address these challenges, companies need to continuously innovate and optimize their business models and product structures. For example, some can strengthen online-offline integration, improve user experience, and enhance customer loyalty; deeply explore consumer needs, launch differentiated products and services to meet the needs of different market segments, strengthen supply chain management, reduce costs, improve efficiency, and expand new revenue sources such as value-added services and advertising revenue.
These measures can help supermarkets gain a firm foothold in the increasingly fierce market competition and gradually get rid of difficulties.
Conservative or aggressive?
Judging from the financial results released by various companies, the entire industry remained cautious in 2022. Perhaps compared with "making a change," "holding on" is a more important core strategy.
Factors such as the impact of the epidemic, rising costs, and the impact of new business formats have put pressure on cautious supermarket companies, which have chosen to close stores and stop losses to save themselves. Statistics show that in the past year, hundreds of supermarkets closed stores, including Greenland Premium closing 70 stores, Hongqi Chain closing 79 stores in the first half of the year, and Zhongbai closing more than 60 stores.
Regarding the reasons for store closures, Zhongbai Group pointed out in its financial report that in view of the long-term losses of some hypermarkets that cannot be reversed, the company decided to close these stores. Closing some hypermarkets aims to further optimize the store structure, improve overall operating quality, and help reduce the impact of loss-making stores on the company's long-term development.
In fact, in the past year, the large number of store closures in traditional supermarkets was not solely due to poor management.
Overall, it is the result of a combination of factors. This includes intensifying market competition and the impact of new business formats and models, making operating pressure continue to rise. If companies still adhere to outdated business models, development will inevitably face difficulties.
A small change can affect the whole. The closure of a large number of stores will inevitably have a certain negative impact on the company's overall revenue. Therefore, in the 2022 financial data, only a few companies were able to achieve revenue growth, while most companies showed a general trend of declining revenue.
On the other hand, with the closure of a large number of stores, the total costs of enterprises in terms of rent, labor, etc. have also been reduced. In financial reports, although overall revenue shows a downward trend, net losses have relatively narrowed. The improvement in net profit is the combined effect of the impact of the Consumer Price Index (CPI) and the company's vigorous development of online business and expansion of new revenue channels.
The challenges facing traditional supermarkets are just beginning. Many industry insiders predict that 2023 will be a turning point.
First, from a macro perspective, according to data from the National Bureau of Statistics, from January to March this year, total retail sales of consumer goods reached 11.49 trillion yuan, a year-on-year increase of 5.8%. Retail sales of consumer goods excluding automobiles were 10.41 trillion yuan, an increase of 6.8%. In the first quarter of this year, China's Gross Domestic Product (GDP) was 28.5 trillion yuan, a year-on-year increase of 4.5% at constant prices.
This growth rate has exceeded the market expectation of 4%. Despite the high base in the first quarter of last year, the performance in the first quarter of this year is not bad. After all, the growth rate only began to decline in the second quarter of last year. In addition, judging from the GDP level in these three months, it only recovered to the pre-epidemic level until March. Therefore, the 4.5% growth is already quite considerable.
However, looking at different market segments, after the epidemic slowed down, the catering industry is the fastest recovering industry. In March, catering revenue increased by 26.3% year-on-year, and the entire first quarter saw a year-on-year increase of 13.9%.
The reason is that after the epidemic was controlled, the frequency of consumers eating out increased significantly. This phenomenon is also closely related to the recovery of the tourism industry. With the recovery of tourism, people are more willing to try different foods during travel, thereby promoting the rapid recovery of the catering industry.
At the same time, supermarket performance has also been considerably affected. According to retail format classification data, in the first quarter of 2023, retail sales of supermarkets, convenience stores, specialty stores, brand stores, and department stores in units above designated size increased by 1.4%, 8.8%, 5.7%, 0.2%, and 9.2% year-on-year, respectively.
Although there is growth, it is far lower than the growth of the catering industry.
In addition, under the influence of the epidemic, online business has caused great competition and substitution for traditional physical business. Consumers have gradually developed the habit of online consumption. Online retail has advantages in price and convenience, causing the market share of physical commerce to be gradually eroded by online retail, while gross margins are also severely squeezed.
Therefore, in today's market environment, how to maintain corporate survival and achieve performance growth has become a major challenge, which is also the main reason for the significant decline in supermarket customer traffic.
Finally, the prospects of the retail industry will also be affected by the overall macroeconomic situation.
If during an inflationary period, commodity prices generally rise rapidly, this may trigger a buying spree under the expectation of currency depreciation, consuming purchasing power, thereby exacerbating market volatility; on the contrary, in a deflationary stage, commodity prices generally fall, consumer spending decreases, which will limit the profit margins of retail enterprises. Therefore, production momentum may weaken, ultimately leading to a decline in consumption and a decline in retail enterprise performance.
In 2023, Chinese retail enterprises will seek survival and development under the background of downward economic expectations and sluggish consumption. There is no doubt that 2023 is also a difficult year.