BY TARGETING the high-end menswear market in Greater China, Evergreen International Holdings Ltd (HK: 238) manages to maintain sky-high 68.3% gross margins -- up from 66.9% a year earlier -- despite cutthroat competition.
And investors can expect more of the same from the Hong Kong listco.
"We can maintain our margins this year," said Evergreen International CFO Dennis To, speaking at last week’s Aries Consulting-sponsored “Braving the Waves: China Investment Strategies 2013” conference in Shenzhen featuring China, Hong Kong and Singapore-listed firms.
He said marketing to men, in the final analysis, wasn’t all that different than to the general population as everyone expected quality and prestige when paying a premium for their pants, shirts, blazers and wingtips, with the median customer age being 30.
“Modern men increasingly care about the functionality and quality of the clothing and apparel they buy. They also tend to be loyal customers of a particular brand, as long as it meets all their needs and expectations.
“This is Evergreen’s strategy – boosting brand image and customer satisfaction in order to maximize profits and shareholder returns amid intense market competition. We aim to be one of the leading menswear plays in Greater China,” Mr. To said.
He added that improving wearers' satisfaction and enhancing future growth remain the two biggest objectives for the company.
“Evergreen will adopt a cautious store opening strategy and plans to open 55 new stores and to control the number of distributor stores to 30, with around 25 to be self-owned stores.”
Evergreen provides business formal and casual menswear accessories under the two brands it owns and manages – France’s “V.E. DELURE” and Italian brand “TESTANTIN” -- via 445 shops in 196 cities in the PRC as well as locations across Hong Kong and Macau.
Mr. To said the company was strategically exposed to a variety of retail venues with around half of its shops being stand-alone stores, 30% located in shopping malls and the rest spread across hotel lobbies and airport terminals.
Although Evergreen would adopt a “cautious” organic expansion strategy via new store openings for its two represented brands, it was not overlooking other growth opportunities.
“We are always looking for new and attractive M&A options, whether domestic or international, as long as they make sense for us,” Mr. To said.
He also said the firm was not averse to taking on more than the current two brands in its product portfolio if it fit in with the strategic long-term growth plan for Evergreen.
While assuring investors that the Hong Kong-listco can maintain its high gross profit margins this year, Mr. To also said Evergreen will stay in a net cash position, adding that the company “hopes to improve dividends.”
The 2012 interim dividend stood at 5.0 HK cents per share, up 13.6% year-on-year.
For the half-year ended June 2012, Evergreen realized a 1.8% y-o-y increase in operating revenue to 338 million yuan, boosting its gross profit 3.8% to 231 million.
Gross profit margins improved to 68.3% from 66.9%.
Meanwhile, net profit over the six-month period declined 19.5% year-on-year to 71.1 million yuan.
Photo: Aries Consulting
The "V.E. DELURE” brand enjoys a 4.2% market share in Mainland China's high-end business suit and causal menswear market, with recent annual retail sales revenue totaling around 310 million yuan.
In recent years, many new brands emerged in the PRC to develop their own high-end menswear images in China.
Established foreign names like Armani and Hugo Boss continue to lead the pack in terms of market confidence with their brands, with other menswear brands in China include Satchi, Vasto, S.D. Spontini, and Chinese domestic brands Septwolves and Lilang.
Because of the intensifying competition, Evergreen was more dedicated than ever to winning new customers and keeping current clients happy.
“Boosting customer satisfaction and enhancing future growth remain the two biggest objectives for Evergreen, as well as increasing the percentage of our self-owned shops' revenue contribution,” Mr. To added.
He also said the company had several platforms to boost its brand image.
"Spokespersons, word of mouth and of course advertising all raise our profile."
As at 30 June 2012, the Group had a total of 445 stores in 33 provinces and autonomous regions,covering 196 cities in China. In the first half of 2012, the number of V.E. DELURE self‐operated stores increased from 127 to 138.
The new self‐operated stores opened mainly in second‐tier and third‐tier cities. Franchised stores operated by the distributors of the Group increased from 174 to 176, with the new stores mainly located in low‐tier cities. The number of new V.E. DELURE self‐operated stores is more than that of new franchised stores, which is in line with the Group’s strategic shift of focus to increase the proportion of self‐operated stores in order to enhance the brand image of V.E. DELURE and long term profit quality.
Moreover, the number of TESTANTIN self‐operated stores increased from 44 to 57 whilst the number of franchised stores decreased from 77 to 74. During the period, the Group made progress in expanding its sales network of TESTANTIN in high‐tier cities by opening its first self‐operated stores in Beijing and Shanghai.
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