Losses widened, operations faced many challenges, Suning wanted to reverse losses to avoid delisting.
Wen | Ma Lin, a reporter from Caijing
Editor | YuLe
On April 29, Suning Tesco (002024. SZ) announced its results for the first quarter of 2021 and 2022, its 2021 full-year revenue of 138.9 billion yuan, down 45% year-on-year, a loss of nearly 43.3 billion yuan, the loss margin expanded by 912%; in the first quarter of 2022, Suning's revenue continued to decline year-on-year, with a loss margin of 23%.
During the reporting period, the company's impairment provision, investment loss, deferred income tax reversal and other factors reduced the net profit attributable to the shareholders of the listed company by a total of 34.702 billion yuan, and if the impact of the above factors is not taken into account, the company will achieve a net profit loss attributable to the shareholders of the listed company of 8.563 billion yuan in 2021.
In 2021, Suning encountered unprecedented liquidity pressure. Due to the negative net profit before and after deduction of non-recurring gains and losses in the last three fiscal years, and the uncertainty of the company's ability to continue to operate in the latest year' audit reports, suning shares will be subject to "other risk warnings" from the opening of the market on May 6, 2022, touching on the "Shenzhen Stock Exchange Stock Listing Rules (Revised in 2022)" (hereinafter referred to as the "Stock Listing Rules").
After the implementation of the "Other Risk Warning", the company's stock is referred to as "ST Tesco" and will enter the A-share risk warning board trading, and the trading day increase or decrease is limited to 5%.
As a retail giant before the rise of e-commerce, Suning once led China's electrical appliance retail industry, with Suning Tesco's online platform and thousands of offline stores. However, from the end of 2020 to 2021, Suning's capital and debt crisis was exposed. Under the surface of trying to catch up with the trend of the times, problems such as its unsuccessful diversification strategy and weak main business status have surfaced one by one.
According to the regulations of the exchange, Suning stock trading will be suspended for one day at the opening of the market on May 5, and trading will resume at the opening of the market on May 6, 2022.
The drawdown widened
From the end of 2020 to the middle of 2021, in order to alleviate the capital crisis, Suning has split business financing and raised capital again and again, and Zhang Jindong, founder of Suning Electric Appliances, the major shareholder of Suning Tesco, has also frequently pledged equity and transferred shares, and the company has entered an unprecedented period of turbulence.
It was not until July 2021 that Jiangsu State-owned Assets and capitals from all parties, including Ali, established a consortium and invested in Suning Tesco to increase suning's credit, and Suning was given an opportunity to resolve the crisis.
However, the sharp turn in the operating conditions have led to difficulties in procurement settlement and capital payment, and liquidity pressure has caused the scale of commodity inventory to drop sharply to a historical trough, stagnation in operation, and greatly affected terminal sales capacity.
The financial report disclosed that Suning's revenue and gross profit margin in all product categories (daily necessities, communication products, small household appliances, refrigerators, washing machines) fell sharply in 2021.
In 2021, the sales revenue of commodities accounting for 92% of the main business was 128 billion yuan, down 46% year-on-year, which eventually led to a large-scale decline in Suning's revenue in 2021, and the gross profit margin of the main business fell year-on-year, from 9.01% in 2021 to 2.58%.
Suning has made vigorous strategic adjustments to the difficult to make profitable goods on the e-commerce platform and the goods with fierce price wars, which has caused a decline in sales of FMCG, communications and other products.
Its services and other revenue in 2021 was 4.1 billion yuan, down 42% year-on-year due to the adjustment of logistics business, especially the high-loss business of Daily Express, which affected Suning's logistics service revenue; the decline in commodity sales revenue also caused a decline in installation and maintenance business revenue.
Suning's industries and products account for more than 10% of its operating income in 2021
Data source: Suning's 2021 financial report
In the first quarter of 2022, Suning's revenue continued to decline year-on-year, down 64% to 19.37 billion yuan, and the year-on-year loss after deducting non-profits expanded by 23% to 1.15 billion yuan.
However, its financial report mentioned that if the impact of factors such as impairment provisions, investment losses, and deferred income tax reversals is removed, Suning's loss in the first quarter of 2022 is decreasing compared with the fourth quarter of 2021.
According to Suning's own statistics, without considering the impact of non-operating cash flow factors, its EBITDA (profit before interest, tax depreciation and amortization) in November 2021 was 0.8 billion yuan, achieving a single-month positive, continued to be positive in December, and EBITDA in the first quarter of 2022 was 260 million yuan, achieving a quarterly positive, and its home appliance 3C core business achieved profitability in March. In the first quarter of 2022, Suning's net operating-related cash flow turned positive to 1.3 billion yuan, and the balance of cash and cash equivalents was nearly 6 billion yuan.
Business is challenging
After a series of failed investments and expansions, Suning has now returned to its main business, focusing on e-commerce, offline store business and logistics services related to the core main business of home appliances 3C. But what lies in front of Suning is still a lot of difficulties.
Although the scale of the home appliance market has reached 1.6 trillion yuan, it is already a stock market. The home appliance industry is affected by the real estate market, and the purchase momentum shows signs of weakness. The penetration rate of basic use-type home appliances is already very high, and the strategy of merchants to drive sales through promotion is difficult to sustain, and it is necessary to tap the consumer's demand for new, medium- and high-end home appliances, such as higher-performance and more intelligent home appliances.
Offline, Suning was forced to adjust its poorly managed stores, and its home appliance stores and the acquired Carrefour supermarket continued to close stores, and the number of stores closed was much higher than the number of new stores.
In 2021, Suning's various stores will increase or decrease
Data source: Suning's 2021 financial report
As of March 31, 2022, suning home appliance stores decreased by 73 and Carrefour stores by 13 in the first quarter of 2022 compared with the previous quarter. The number of stores in Suning Tesco Plaza and Hong Kong remained unchanged.
However, Suning's open and franchised Suning Tesco retail cloud store is still expanding, and the first quarter of 2022 has increased by 225 stores compared with the previous quarter, which shows that Suning hopes to rely on an asset-light franchise model to seek performance as quickly as possible in the short term.
As of March 31, 2022, Suning's various stores have changed
Note: Carrefour supermarkets include hypermarkets, member stores, select stores, and convenience stores.
Data source: Suning's first quarter 2022 financial report
At present, Suning's online business focuses on the main station Suning Tesco and the Tmall flagship store. In terms of logistics services, Suning has stopped the daily express small pieces business in 2021, focusing on the home improvement business of large and medium-sized home appliances, building integrated warehousing and delivery services, and is also expanding upstream brand manufacturers and rookie orders.
Nowadays, e-commerce and community group buying are continuing to impact the traditional hypermarket business, and the retail industry is generally not optimistic about Carrefour, believing that suning, which is difficult to protect itself, is difficult to fundamentally change the fate of Carrefour. It is even more difficult for Carrefour to make blood for Suning.
The stock was "ST", and Suning wanted to turn around the loss to avoid delisting
According to Wind data, there are currently 188 listed companies in A-shares that have been subject to risk warnings, including 72 "ST" companies, 115 "ST" companies, and 1 "SST" company.
According to the Stock Listing Rules, the risk warnings of listed companies include "delisting risk warnings" and "other risk warnings". Companies that are subject to the "Delisting Risk Warning" have the word *ST prefixed with the stock abbreviation; companies that have implemented the "Other Risk Warning" have the word ST prefixed with the stock abbreviation; and companies that have both "Delisting Risk Warning" and "Other Risk Warning" have the word *SST before the stock abbreviation.
Suning's net profit before and after deducting non-recurring gains and losses in 2019, 2020 and 2021 is negative. At the same time, PwC Zhongtian issued an unqualified opinion audit report with "material uncertainty paragraphs related to going concern". The above two facts touch on Article 9.8.1 (7) of the Stock Listing Rules, so Suning shares will be subject to "other risk warnings" and "ST" hats.
Regulations of the Shenzhen Stock Exchange for "ST" companies