A net profit of S$29 million has been announced by supermarket operator Sheng Siong for its Q1 which ended 31 March.
Its net profit increased by 49.9 per cent from the previous year due to (1) revenue jump, (2) better gross margin, (3) higher other income, and (4) a less-than-proportional increase in operating expenses compared to the rise in revenue.
The supermarket operator’s revenue rose 30.7 per cent to S$328.7 million, driven primarily by the better-than-expected Chinese New Year sales and the impact from COVID-19 pandemic.
Compared to Q1 last year at 1.29 cents, earnings per share in Q1 were 1.91 cents. This time, no dividend was disclosed, similar to the period the previous year.
Nonetheless, employees, excluding directors, will receive an additional month of salary for their hard work throughout the period of increased demand in Q1, Sheng Siong stated with regards to its strong results in Q1.
When the Government responded to the pandemic by changing the colour alert of the Disease Outbreak Response System Condition (DORSCON) from yellow to orange on 7 February, demand and sales increased as more people started having meals at home and “loading up their pantry”, Sheng Siong remarked.
Before that, recovering consumer sentiment and the low base effect last year led to better Chinese New Year sales in Q1 compared to 2019, Sheng Siong added.
Higher sales of its house brands mainly caused gross margin to increase to 27 per cent in Q1, compared to 26.1 per cent the previous year.
Sales increased the most for non-fresh products, whose sourcing was diversified to meet the sudden increase in demand. Compared to Q1 2019, the ratio of fresh to non-fresh products stayed about the same in the first quarter.
Sheng Siong also stated that in Q1, it did not experience big disruptions in its supply chain.
The group also noted in the update: “In hindsight, our move to increase our stockholding since the end of Q4 2019 prevented serious stock-out situations, although certain heavily demanded items were depleted immediately after the first round of elevated buying.”
Sheng Siong added that it will also keep on looking for retail space in areas where it has yet to establish itself.
If it was not for the circuit breaker measures, five outlets would have been opened by Sheng Siong this year, totalling its area to around 575,160 sq ft and network to 64 outlets.
Competition will likely remain strong between online supermarkets and brick-and-mortar supermarkets, the group admitted. Future disruptions to the supply chain and the rise in prices due to lockdowns imposed in many countries amid the pandemic could occur, as warned by several international food companies.
Sheng Siong expects revenue to wither off from the higher levels now once the COVID-19 situation improves. Households will then consume the buffer stocks they have been keeping.
“In the meanwhile, we will continue to hold a higher-than-normal level of inventory as a hedge against potential disruption to the supply chain,” the company assured.