Robust retail consumption last year propped up the net profits of Hong Kong-based apparel retailer I.T.

The company earnings for fiscal year 2007, which ended in February of this year, totaled HK$171 million - an increase of 39.7 percent, year on year.

Turnover for the group also jumped 32 percent, to HK$2 billion,during the fiscal year. It helped bring the earnings per share for I.T shareholders to HK$0.16. A final dividend of HK$0.10 per share was announced, representing a pay-out ratio of 70 percent.

Despite rises in both rental expenses and staff costs, which took up 21.5 and 18 percent, respectively, of the company's total revenue last year, I.T's gross margin managed to widen 1.3 percentage points to 59.5 percent.

The group's vice-chairman and managing director, William Lo, said the improved margin is mainly due to the sound performance of in-house brands, which represent 46.6 percent of I.T's total retail sales. The group's international brands account for 45.6 percent of sales.

"This trend is very positive, since margins are typically much higher for in-house brands than for international brands," Lo told reporters at the company's annual results announcement yesterday.

Although Lo said that the company has no plans to launch new in-house brands this year, he revealed that female lines of predominantly male brands, such as Chocolate and 5cm, will be launched this year.

With rising operational costs, Lo said consumers could expect a heftier price tag in the coming seasons.

"Hong Kong's inflation is at about 5 percent, and any price increase has to address that," Lo said.

Still, Lo is confident that same-store sales will continue to grow robustly. In 2007, the same-store sales actually grew by a record of 16 percent in Hong Kong.

Greater China operations for the group, on the other hand, saw less rosy results. I.T recorded a meager HK$4.3 million in net profits last year from that business. "It was a goal of the management last year to turn the Greater China business profitable, and we have achieved that," Lo said.

Excluding a loss in Taiwan business, the major reason behind the lag in profitability lies in the import tax structure, a lower in-house brand product mix, and I.T's initial capital intensive development stage on the mainland.

Last year, the group bought back the China joint venture and took sole control over the mainland operations. The managing director said that the group will boost the brand recognition of in-house brands, enhance its retail network and expand in top second-tier cities such as Hangzhou and Nanjing. The group currently manages 104 stores on the mainland.

I.T shares inched up 1.54 percent yesterday to close at HK$2.64 before the annual results were announced.

(HK Edition 05/15/2008 page2)