Hero's profit plunges by 82%

Rendi A. Witular, The Jakarta Post, Jakarta

One of the country's largest retailers, PT Hero Supermarket, announced on Monday that during the first semester of this year its net profit plunged by 82 percent as compared to the same period last year, in spite of an increase in sales.

The company booked a 16 percent increase in sales in the first half of the year to Rp 1.26 trillion (US$142 million) from Rp 1.08 trillion in the same period last year.

However, the company's net profit declined to Rp 3.38 billion, or Rp 10 per share, from Rp 18.9 billion, or Rp 58 per share, due to a rise in operational costs from Rp 837 billion to Rp 1 trillion.

Analysts blamed the drop in net profit on the company's move to finance its acquisition of Tops supermarket.

In May, Hero shareholders approved the acquisition of 22 Tops stores in a bid to accelerate the expansion of its network at a relatively low cost. The acquisition increased Hero's network to 111 outlets.

Analysts said other factors behind the drop in net profit were increases in fuel prices and electricity rates.

The company's general and administrative costs rose to Rp 229 billion in the first half of the year from Rp 198 billion a year ago.

Analysts said the increase in operating costs was the result of stiffer competition in the retail sector.

For the past two years, Hero has been under pressure from French hypermarket operator Carrefour, which has opened outlets near Hero outlets.

Hero has difficulty competing with Carrefour because it cannot match the prices offered by the hypermarket.

In its report, Hero said that during the first half of this year it spent Rp 8.2 billion closing down outlets. This figure was up 95 percent from the Rp 4.3 billion it spent in the same period last year.

Aside from the Hero supermarkets, the company also operates Giant hypermarkets, Guardian pharmacies and Starmart minimarkets.