Sun Art Retail (06808.HK), which was "hammered" by e-commerce, fell into a vortex of huge losses in fiscal year 2024. In fiscal year 2025, Sun Art Retail officially announced a "return" strategy, which is to focus on product strength and price competitiveness, develop multiple fo

Sun Art Retail (06808.hk), which was "hammered" by e-commerce, fell into a vortex of huge losses in fiscal year 2024.

In fiscal year 2025, Sun Art Retail officially announced a "return" strategy, which is to focus on product strength and price competitiveness, develop multiple formats and omni-channels, and implement cost reduction and efficiency improvement measures.

Under the "return" strategy, although Sun Art Retail successfully got rid of the predicament of losses, the capital market did not respond positively to this.

can turn around losses by reducing costs?

On the evening of November 12, Sun Art Retail disclosed its interim results for the six months ending September 30, 2024 (hereinafter referred to as the "FY25 Interim").

Throughout fiscal year 2024, Sun Art Retail incurred a loss of up to 1.605 billion yuan due to reduced passenger flow, declining revenue, and declining hematopoietic capacity. However, in the middle of FY25, Sun Art Retail achieved a strong turnaround, achieving a profit attributable to the company's equity shareholders of 206 million yuan, compared with a loss of 359 million yuan in the same period last year.

The biggest “contributor” to Sun Art Retail’s turnaround was the reduction in expenses. According to the company's presentation, the company accelerated cost reduction and efficiency improvement in the mid-term of FY25, with expenses reduced by 1.09 billion yuan compared with the same period, and the expense rate decreased by 2.3 percentage points compared with the same period.

The reduction in expenses is mainly due to the company's optimization of store layout, including closing some stores to reduce labor and other operating costs. In the middle of FY25, the company continued to reduce the size of its stores. Among them, the number of large supermarkets decreased by 19 to 466 compared with the same period last year.

On the revenue side, Sun Art Retail’s mid-term revenue decline in FY25 has slowed down, with a year-on-year decrease of 3%. While this change shows some signs of improvement, it also exposes the growth challenges faced by the company amid macroeconomic changes.

Sun Art Retail pointed out that customer orders increased in the first half of the fiscal year, and the downward trend in the number of visitors narrowed. If the shrinkage of supply chain business and the impact of store closures are not taken into account, revenue increased by approximately 0.6%. In addition, same-store sales growth has also improved significantly. Calculated by product sales excluding supply chain business, it was 0.3%. The growth mainly comes from the increase in unit price per customer. Low-price strategies and product strategies improve users’ minds, drive the increase in single items, and user stickiness. sexual enhancement.

However, Sun Art Retail, which escaped from the quagmire of losses, did not receive "congratulations" from the capital market for obtaining funds. On November 13, the company's stock price continued to decline, once falling by more than 3%. The company's stock price fell one after another for three consecutive trading days.

It is worth mentioning that Sun Art Retail may have a new major shareholder as its operating performance improves. In mid-October, Sun Art Retail announced that it had received a contact letter from an independent third party interested in the bidder, indicating its intention to make a voluntary conditional offer with preconditions for all of the company’s issued shares.

There were previous reports that there were market rumors that Hillhouse Capital, Runtai Group and KKR Group may be interested in taking over Sun Art Retail, with Hillhouse Capital being the most likely to take action.

Can the Chinese Super League format help reverse the dilemma?

At present, the domestic retail industry is facing profound changes and challenges. New e-commerce models such as traditional e-commerce and emerging live streaming have had a major impact on the offline retail industry.

It is not just Sun Art Retail, Yonghui Supermarket (601933.sh), st BBK (002251.sz), *st Renle (002336.sz) and other companies operating hypermarkets and supermarkets have also suffered in recent years. Waterloo and continuous losses reflect the existential crisis that the entire retail industry is facing in the context of digitalization and model upgrading.

Sun Art Retail operates hypermarkets, medium-sized supermarkets and membership stores under the brands of "RT-Mart", "RT-Mart super" and "m member store". In order to cope with the challenges, RT-Mart had previously embarked on the road of "reconstructing hypermarkets", renovating and upgrading many old stores, and trying to open new stores, but the overall effect was not great.

This year, Sun Art Retail has determined its main store format in the future: RT-Mart super, which is smaller and more refined and has a community canteen.Sun Art Retail stated that RT-Mart super integrates the advantages of its peers, continues to optimize its business model and profit model, and lays the foundation for flexible store expansion.

In the middle of FY25, RT-Mart super has 30 stores in Shanghai, Jiangsu, Anhui, Zhejiang, Shandong, Jilin, Hubei, Gansu, Sichuan and Guangdong. These stores have introduced "Super Savings", "Everyday Cheap", "Plus "Quantity No Price Increase" and "Must Buy" series of products provide consumers with more than a thousand long-term low-price products.

In its interim report for FY25, Sun Art Retail stated that Chinese Super League business performance has improved significantly, with same-store sales achieving mid-to-high single-digit growth. Sun Art Retail has high hopes for the Chinese Super League business, saying that the Chinese Super League business will become an important driving force for the group’s store openings in the future. It will also give the group the opportunity to return to high-tier cities and will be more active in rapidly opening stores, becoming the second growth rate of Sun Art Retail. curve.

Returning to "reality", Sun Art Retail's transformation and growth will inevitably be accompanied by pain. Whether it can return to the growth track in the future remains to be seen.

Author: far away