SINGAPORE (THE BUSINESS TIMES) - Supermarket operator Sheng Siong posted a net profit of $29 million for its first quarter ended March 31, up 49.9 per cent from a year ago on the back of its revenue jump, better gross margin, higher other income and a less-than-proportional increase in operating expenses relative to the increase in revenue.

Revenue went up 30.7 per cent to $328.7 million, attributed mostly to the impact of Covid-19 and better-than-expected Chinese New Year sales.

Earnings per share in Q1 was 1.91 cents, compared with 1.29 cents in Q1 2019.

No dividend was declared this time, as was the case for the corresponding period a year ago.

However, with its strong Q1 results in the bag, Sheng Siong said that staff, excluding directors, will be rewarded with an additional month of salary for working hard during the period of elevated demand in Q1.

The group noted that demand and sales rose when the Government, responding to the pandemic, moved the country from Dorscon yellow to orange on Feb 7; more people began having meals at home and "loading up their pantry as well". Dorscon stands for Disease Outbreak Response System Condition.

Prior to that, its first quarter had started with better Chinese New Year sales than a year ago because of recovering consumer sentiment and the low base effect in 2019, added the group.

Gross margin improved to 27 per cent in Q1 from 26.1 per cent a year ago, with the gains coming mainly from increased sales of its house brands.

The biggest gain came from non-fresh products, with sourcing having been diversified to cope with the sudden surge in demand. The ratio of fresh to non-fresh products remained about the same in Q1, compared to Q1 last year.

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The group also said that it did not experience major disruptions in its supply chain in the first quarter.

"In hindsight, our move to increase our stockholding since the end of Q4 2019 prevented serious stock-out situations, although certain heavily demanded items were depleted immediately after the first round of elevated buying," the group said in the update.

It added that it will continue to look for retail space in areas where it does not have a presence. Before the circuit-breaker measures threw a spanner in the works, Sheng Siong was to have opened five outlets this year, bringing its network to 64 outlets and its retail area to approximately 575,160 sq ft.

The group acknowledged that competition is likely to remain keen between brick-and-mortar and online players, with some international food companies warning of future disruptions to the supply chain and an increase in prices because of the lockdowns imposed in many countries as a result of Covid-19.

When the pandemic situation normalises, the group expects revenue to taper off from the current elevated levels as buffer stocks kept by households are consumed.

"In the meanwhile, we will continue to hold a higher-than-normal level of inventory as a hedge against potential disruption to the supply chain," said the group.

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