Apparel and accessory retailer I.T has become the latest Hong Kong company to issue a profit warning. The company said it expects net loss to more than double from its previous forecast in April, as the city’s economy suffers from one of its worst economic downturns due to the coronavirus pandemic and social unrest.
The distributor of European and Japanese brands such as French Connection and A Bathing Ape said net loss will reach at least HK$700 million (US$90.3 million) for the year ended February 29, compared with the HK$300 million forecast in early April.
An increase in impairment provision in the fourth quarter has exacerbated the pain, I.T said. The results are due to be released on Wednesday.
In its previous profit warning, the company had highlighted the impact of the social unrest in Hong Kong on its sales, worsened by the ongoing coronavirus pandemic. “Inbound tourism and spending enthusiasm in several of the group’s key operating markets such as Hong Kong and Mainland China were adversely impacted, further suppressing the already dampened retail landscape,” it said.
The company had also asked employees to take unpaid leave in February and March to prevent its financial situation from deteriorating further.
The profit warning comes as around 10,400 retail workers are expected to lose jobs by the end of this month, according to the trade group Hong Kong Retail Management. Some 5,200 stores will close this month with the possibility of thousands more shutting down later in the year.
Terry Hong, analyst at Guotai Junan, said the likelihood of further demonstrations to protest against the proposed national security law for Hong Kong will hurt the city’s retailers further. The high rents, pandemic, social unrest and drop in tourists from mainland China will continue to weigh on retailers, he added.
Competition from e-commerce platforms has also hurt the owner of in-house fashion brands such as izzue and Chocoolate.
“There are so many more channels for customers to buy luxury and fashion products,” said Hong, adding the current easy-to-return rules on e-commerce retailers has persuaded people to turn to brands directly for purchases.
Chen Ke, senior partner at Roland Berger in Shanghai, said that the recovery of top-end fashion brands would lag those of high street labels as consumers become price conscious in these testing economic times. “The pandemic has accelerated the process of pushing out the ones that do not provide unique value and whose products are characterised by homogeneity,” he added.
I.T shares fell 0.9 per cent in Hong Kong on Tuesday, taking its overall decline to 78.4 per cent since the start of the protests on June 9.
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