How will the closure of The Verge store affect its Q2 profits?
The lacklustre Q1 has Sheng Siong on its toes for the next quarters to come.
According to OCBC Investment Research analyst Jodie Foo, the flattish same stores sales growth in the past quarter was due to a few stores in areas that were affected by the oil and gas industry, the store in Block 506 Tampines Central that had on-going renovations, and a slowdown in the Woodlands store prior to its closure
Looking forward, however, the analyst said there are four things that can either boost or worsen the group's performance in the following quarter.
One is the re-opening of the temporarily closed Loyang store. The 7,200 sq ft store was reopened late February. Meanwhile, the 45,000 sqft store at the Verge has closed, with its last day of operation on June 20. The 41,000 sq ft-store in Woodlands will also shut down by August.
Lastly, the analyst expects the new 11,000 sq ft store along Woodlands St 12 to open by Q3.
"While the latter new store is located about 1km walk from an existing store at Woodlands St 31 Blk 301, we believe management has traditionally been prudent in their decisions and the store should help to boost presence and capture customers. Opportunities to expand also remain," Foo said.
However, she noted that amidst keen competition and relatively stable consumer sentiment, factors seen in Q1 for SSSG to likely continue into Q2.
In addition, the closure of The Verge store will slightly affect Q2 results as well.
"Nonetheless, we believe achieving an optimal level of revenue per square feet especially for the four new stores opened in 2016 (including 15k sq ft Yishun Junction 9) as well as the larger Block 506 Tampines store (additional 15k sq ft added), coupled with sustainable margins could offer resilience to earnings," Foo explained.
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