Hong Kong cosmetic chain Sa Sa says first half 1 profit up 27%

HONG KONG - Hong Kong-based retailer Sa Sa International Holdings Ltd on Monday posted a 26.7 percent rise in net profit for the six months ended in September, as strong cosmetics sales balanced slowing growth in mainland Chinese tourist numbers.

A bellwether of the cosmetics retail sector and Chinese tourist spending, Sa Sa said net profit rose to HK$357.4 million ($46.09 million) in the fiscal first-half, from HK$282.1 million a year ago. The result was in line with an average forecast of HK$360 million by four analysts polled by Reuters.

Growth in the number of same-day-return tourists fell from 37.2 percent to 21.0 percent in the first nine months of 2013, the company said. Declining tourist numbers were reflected in the company's Golden Week holiday sales last month, which rose a less-than-expected 11 percent.

Kingsway Group Research analyst Steve Chow said Sa Sa faced possible challenges from foreign competitors and rising costs.

"We have to keep watching how the company controls the cost of rent and labour, and how it deals with the potential change in the industry due to change in (Chinese) policy," he said.

China is considering allowing the sale of certain cosmetics without requiring them to be tested on animals, opening up a potential route into the country's 134 billion yuan ($22 billion) cosmetics market for firms like The Body Shop, wholly-owned by L'Oreal S.A., which oppose animal testing.

Sa Sa said revenue rose 15.4 percent to HK$3.90 billion from HK$3.38 billion a year ago, while gross profit margin increased to 47 percent from 45.7 percent.

Chairman Simon Kwok said in the earnings statement that sales to mainland visitors continued to insulate the $3 billion company - known for its face creams and moisturisers - from shaky consumer sentiment and global economic uncertainty.

Sa Sa and smaller rival Bonjour Holdings Ltd's stores in Hong Kong are usually packed with Chinese tourists snapping up face masks, perfumes and other cosmetics at competitive prices.

Sa Sa shares have climbed 31 percent this year, outpacing the 3.9 percent gain in the benchmark Hang Seng Index but well behind the 77 percent surge in Bonjour, which has posted strong earnings growth.

$1 = 7.7537 Hong Kong dollars