Hero to open more stores to boost revenues
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Retail company PT Hero Supermarket (Hero) will spend up to Rp 640 billion (US$48 million) this year for business expansion with retail plans to open stores in several cities across the country.
The move will be made to restore the company’s disappointing financial performance earlier this year.
Hero, which operates hypermarkets, supermarkets, convenience stores, drug stores and furniture stores, plans to open four Giant Ekstra hypermarkets and six mid-sized Giant Ekspres supermarkets in several regions, including Bangka and Lombok. Arief Istanto, a director with Hero, said each Giant Ekstra would cost between Rp 100 billion and Rp 150 billion while the Giant Ekspres would cost about Rp 20 billion. It means the company will allocate between Rp 440 billion and Rp 640 billion in capital expenditure to build the stores this year.
Arif said the company aimed to improve its financial performance and hoped to book profits like it did in previous years. The company will use its internal funds for the expansion.
“We would like to expand our network so that it can attract more customers. Thus, our top line will also increase,” he said after an extraordinary shareholders’ meeting on Tuesday. At the meeting, they agreed not to disburse the Rp 43.75 billion in dividends to shareholders and instead spend it on the company’s business expansion plan.
Hero Supermarket previously suffered Rp 33.19 billion in net losses during the first quarter of this year amid a 14 percent increase in net revenues of Rp 3.57 trillion, making it the worst performer in the country’s retail industry.
“It means the company will allocate between Rp 440 billion and Rp 640 billion in capital expenditure to build the stores this year.”
Last year, the company saw its net profit dive to Rp 43.75 billion from Rp 671.13 billion in 2013. A 13.94 percent increase in revenues, which stood at Rp 13.56 trillion at that time, could not ease the ballooning operating expenses, which hit Rp 3.31 trillion.
“Our 2014 financial results were disappointing with weak sales growth and a significant increase in operating costs across all businesses as well as higher overhead and store pre-opening costs,” Stephane Deutsch, Hero’s president director, said in a statement.
In 2014, the company launched a flagship furniture store under Swedish brand IKEA in Alam Sutera, Tangerang, Banten, some 25 kilometers west of Jakarta’s city center.
Arief confirmed Hero has planned to build five more IKEA stores in the future as the company was upbeat about the prospects of the franchise furniture store.
“At the moment, we are looking for land for the second store. It is supposed to be done this year,” Arief said, adding that the second store would be located in Greater Jakarta.
According to him, IKEA has contributed around Rp 200 billion to Hero’s revenues in the first quarter of this year,
Hero says it hopes to book 30 to 40 percent growth in revenues during the fasting month of Ramadhan this year. The company currently operates 33 Hero supermarket stores, 341 Guardian healthcare stores, 98 Starmart convenience stores, 53 Giant Ekstra stores, 121 Giant Ekspres stores, two Jason supermarket stores and one IKEA store.
Questions & Answers
Q.What was Hero Supermarket's financial performance like in the first quarter of this year?
What was Hero Supermarket's financial performance like in the first quarter of this year?
Hero Supermarket recorded net losses of Rp 33.19 billion during the first quarter of this year. This occurred despite a 14 percent increase in net revenues, which reached Rp 3.57 trillion, making it the worst performer in the country’s retail industry.
Q.How much revenue did the IKEA store contribute to Hero's performance in the first quarter?
How much revenue did the IKEA store contribute to Hero's performance in the first quarter?
The IKEA store contributed approximately Rp 200 billion to Hero's total revenues in the first quarter of this year. The company is optimistic about the future prospects of the furniture store franchise.
Q.What was the reason given for the disappointing financial results in 2014?
What was the reason given for the disappointing financial results in 2014?
The 2014 financial results were disappointing due to weak sales growth and a significant increase in operating costs across all businesses. Higher overhead and store pre-opening costs also contributed to the situation.
Q.How is Hero funding its expansion plans this year?
How is Hero funding its expansion plans this year?
Hero will use its internal funds for the expansion, allocating between Rp 440 billion and Rp 640 billion in capital expenditure. Also, Rp 43.75 billion in dividends were not disbursed to shareholders, and this amount will also be spent on the expansion.
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