Profit Slides at The Hour Glass

Hourglass logo Multi-brand specialist luxury watch retailer, The Hour Glass Limited (SGX: E5P), or THG, posted a 6% year-on-year decline in net profit, on the back of a 14% year-on-year rise in revenue for the first half of 2013. On the day the results were release, THG shares were changing hands at $1.75.

Established in 1979, THG represents over 50 watch brands across 24 boutiques in eight cities throughout the Asia Pacific. THG was recognised as Asia’s premier watch retailer by both Monocle and Wallpaper magazine. In February 2011, THG opened Malmaison, situated in the heart of Orchard Road at Knightsbridge.

Malmaison clinched the “Best Retail Concept of the Year” award in 2011 bestowed by the Singapore Retailers Association.  It was touted as a “sanctuary for objects of authentic luxury housed in an elegant yet eclectic setting”. A locally-listed company, Kingsmen Creatives Limited (SGX: 5MZ), had a huge part to play in THG clinching the award, as they were the company that fitted the interior of the store.

THG clocked up revenue of $315m in the first half of 2013, due to “innovative marketing and merchandising campaigns”. Store openings at the Landmark Atrium in Hong Kong and Edward Street in Brisbane, Australia under the specialty watch division and two points of sales for Ladurée in Singapore under the luxury enterprise division also contributed to the increase in revenue.

Despite the growth in revenue, increasing operating costs and weak Asian economies led to a decrease in net profit to $18.3m.

As of 30 September 2013, the company had a cash balance of S$72m and a total debt of S$42.1m. The inventory increased from S$265.7m in the first quarter of 2013 to S$272.1m in the latest quarter.

The cash flow from operations for the first half improved to S$8.6m, reversing a cash outflow of S$28.3 million last time.

Mr Michael Tay, the Executive Director of THG, said, “We recognised early on in the financial year that demand was being compromised by a spate of negative news flow concerning the health of Asian economies.

 “Hence, we decided to take the initiative to aggressively increase our advertising and marketing activities and drive promotional sales campaigns during the period. One such initiative was The Hour Glass pop-up store held during the Singapore F1 season.”

The company said it is “cautiously optimistic” about its future for the rest of the financial year due to the global economic uncertainty and slowing Asian economies.

The company had delivered massive shareholder returns for the past ten years. The shares are up by some 1,180%, triumphing the Straits Times Index (SGX: ^STI) by an extremely wide margin, which gained only 91% during the same period. With THG facing some headwinds as seen from the latest results, is such massive growth in share price a thing of the past? Only time will tell (pun not intended).

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in Kingsmen Creatives Limited.