August 14, 2014 / 2:05 AM / 3 years ago

China's Sun Art H1 profit climbs on push into lower-tier cities

HONG KONG, Aug 14 (Reuters) - China’s biggest hypermarket chain Sun Art Retail Group Ltd posted an 8.5 percent increase in first-half net profit as it continued to expand into lower-tier cities though same-store sales in the period were flat.

While more diversified ways of shopping and slower growth in consumer spending have kept a lid on same-store sales, Sun Art said it had improved margins by leveraging economies of scale and that it would continue its push into lower-tier cities.

The joint venture between Taiwan conglomerate Ruentex Group and French retailer Groupe Auchan SA said late on Wednesday its first-half net profit was 1.71 billion yuan ($278 million) for the six months ended in June, in line with analysts’ forecasts.

Revenue surged 7.9 percent to 48.0 billion yuan while gross profit margin increased 1.2 percentage points to 21.9 percent.

“Aligning with the long term trend of urbanization, the group will continue to maintain a strong pace of expansion to lower tier cities by prudently selecting the location of new stores to ensure their quality,” Chief Executive Bruno Robert Mercier said in a filing to the Hong Kong bourse.

It opened 4 new hypermarket complexes during the period, bringing its total to 327 as of end-June. Of the total, 45 percent are in third-tier cities, and 21 percent in fourth-tier cities while 28 percent are in first and second-tier cities.

The company also launched its website in January, aiming to drive sales further through e-commerce. It competes with Wal-Mart Stores Inc and local rivals including China Resources Enterprise Ltd.

1 US dollar = 6.1531 Chinese yuan Reporting by Donny Kwok; Editing by Edwina Gibbs

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