The supermarket giant Gaoxin Retail (06808) doesn't seem to be having a good time recently.

The Zhitong Finance App noticed that at the opening of trading on September 12, Gaoxin Retail's stock price opened low and went low. At one point in the intraday period, it hit HK$1.72, a new low during the year. By the close of the day, Gaoxin retail had declined by 5.43% to HK$1.74.

However, if you look at it over a long period of time, the rebound trend of Gaoxin retail has come to an abrupt end since May of this year, and has re-entered a downward channel. Since May, the stock's cumulative decline has reached 48.14%, which is almost “cut short.”

Perhaps the core reason behind Gaoxin's retail boom is that the company's previously disclosed annual results for the year ended March 31, 2023 still fell short of expectations. Faced with weak fundamentals, a large number of investors chose to “vote with their feet.”

It is worth mentioning that in the face of a challenging market environment, Gaoxin Retail has actually been seeking changes in recent years. For example, Gaoxin Retail is already exploring the membership store model and continues to increase investment in new business formats, while at the same time strengthening capacity building. However, at least when viewed in conjunction with financial reports, the results are clearly not satisfactory.

The transformation is unfavorable and performance continues to be under pressure

As one of the pioneers of the hypermarket business in China, Gaoxin retail has a long history and an outstanding leading position. Going back in history, it has been more than 20 years since Gaoxin Retail was founded. Initially, it operated hypermarket services under two well-known brands, Da Runfa and Auchan. In 2020, Alibaba officially joined Gaoxin Retail. Since then, Gaoxin Retail has become one of the most core members of Alibaba's new retail matrix, using a model sample of physical retail as a benchmark for advancing Alibaba's long-term new retail project to implement digital transformation in physical retail.

According to public information, as of March 31, 2023, Gaoxin Retail has 486 hypermarkets, 12 medium-sized supermarkets, and 84 small supermarkets in China. Among them, about 7% of the company's hypermarkets and medium-sized supermarkets are located in first-tier cities, 17.5% in second-tier cities, 48.4% in third-tier cities, 19.5% in fourth-tier cities, and 7.6% in fifth-tier cities.

However, despite having more than 500 stores and Alibaba as a strong backer behind it, Gaoxin Retail still seems unable to break through the bottleneck of development.

According to the company's fiscal year 2023 financial report previously disclosed, during the reporting period, the company achieved revenue of 83.662 billion yuan (RMB, same unit), a year-on-year decline of 5.1%; net profit attributable to the parent was 109 million yuan, turning a loss into a profit, but the profit scale still hovered near the break-even line.

Looking further, in fiscal year 2023, Gaoxin Retail's product sales business achieved revenue of 80.535 billion yuan, a year-on-year decrease of 4.8%; rental revenue was 3.127 billion yuan, a year-on-year decrease of 11.6%. During the period, Gaoxin retail's business experienced an overall decline.

At the same time, Gaoxin Retail's same-store sales also fell 4% year over year. According to reports, the company's offline sales were affected by the decline in passenger flow during the reporting period, but thanks to the positive progress made by the company's online channels in the terminal consumer business and Alibaba Group's community group buying supply business, this hedged the impact of the contraction in offline business to a certain extent. According to the data, the company's B2C business revenue increased by about 15% in fiscal year 2023. The average daily order volume of B2C business stores was nearly 1,300 orders, and the customer unit price was about 75 yuan.

In terms of profit, Gaoxin Retail achieved gross profit of 20.581 billion yuan during the period, a year-on-year decrease of 4.2%; the corresponding gross profit margin was 24.6%, a slight increase of 0.2 pct over the previous year. In the same period, the company's net profit was 109 million yuan, which has been significantly optimized from -739 million yuan last year, but the profit scale is still small.

It can be seen that even though Gaoxin Retail adopted a relatively positive operating strategy in the past fiscal year, the company's fundamentals have not been able to return to growth.

Looking back at fiscal year 2023, on the one hand, Gaoxin Retail completed the organizational construction of M member stores and opened its first store in Yangzhou earlier this year. On the other hand, the company continued to increase investment in new business formats. During the period, the company's Zhongrunfa stores increased by 5, bringing the total to 12; while Xiaorunfa stores were added 21, bringing the total to 84. What is slightly embarrassing, however, is that the number of Xiaorunfa stores closed during the fiscal year was as high as 40. From this, it is probably not difficult to see that the transformation of Gaoxin retail has not been smooth.

The growth prospects of the industry during the adjustment period are uncertain

There is an old saying; if you see a leaf fall, you know that the year will come to an end. In fact, if we switch to an industry perspective, it is not difficult to find that Gaoxin Retail is not the only supermarket facing bottlenecks in development. According to observations, according to recent announcements of listed offline supermarkets that revealed their 2023 interim results, the core financial data of most supermarket companies has declined to varying degrees.

Not only that, but some famous hypermarkets in the past are experiencing a bleak situation where stores are closing at an accelerated pace. Take Carrefour China as an example. According to relevant media reports, Carrefour China has closed hundreds of stores one after another this year, and questions about restrictions on the use of shopping cards in Carrefour supermarkets have been repeated in the press.

The store business is declining. No wonder that even Gaoxin Retail, which has both brand advantages, scale advantages, and first-mover advantages, cannot rely on endogenous growth to calm fluctuations in performance.

Perhaps because of this, Gaoxin Retail's response is still to step up efforts to transform, opening up a new growth pattern by boosting online and transforming offline stores.

According to the company's financial report, in FY2023, Gaoxin Retail intends to iteratively upgrade the four major strategies and incorporate product power into the Group's core strategy. As far as development is concerned, the foothold of Gaoxin's new retail strategy covers the four dimensions of product power, offline experience centers, online fulfillment centers, and multiple business formats.

Looking at it one by one, product strength means letting customers buy “food” from Da Yun Fa; an offline experience center means letting customers “love life and visit Da Runfa”; an online fulfillment center pursues providing customers with stable quality, experience, and service; multiple business formats, that is, the expansion of China Runfa and the experiments of M member stores, thus creating a second growth curve.

However, as mentioned earlier, Gaoxin Retail's transformation path may not be an easy one. First, take China Runfa as an example. As a low-threshold extension of Da Runfa, its popularity among consumers is insufficient, and it also needs to face instant e-commerce, community group buying, and competition from delivery anchors on various platforms. Its development potential is still unknown.

However, M member stores, which are also highly anticipated, will probably require a longer period of refinement before they can become competitive. At this stage, warehouse-type member stores are gaining popularity. In contrast, M member stores have a big gap with Sam and others in terms of supply chain and market popularity. In a context where it has not yet developed its own distinct characteristics and competitive advantage, if Gaoxin Retail wants to break out in the member store field, I'm afraid it still has a long way to go.

The marginal improvement in profits cannot keep up with the steady decline in revenue, and looking forward to the future market also doesn't seem to be able to tell a lot of beautiful growth stories. It makes sense that Gaoxin's retail stock price is steadily declining under multiple blows. As far as Gaoxin Retail is concerned, it may be difficult to be optimistic about the company's secondary market performance until the decline in fundamentals is reversed.