Sa Sa International Holdings, Hong Kong's leading cosmetics retailer, said yesterday it recorded a nearly flat profit growth in the first-half of the fiscal year due to economic downturn.

The retailer's net earnings were HK$87.7 million for the six months that ended Sept 30 this year, compared with HK$88 million recorded in the same period in the previous year. The group's turnover was HK$1.63 billion, representing a 16.5 percent growth year-on-year.

Simon Kwok, chief executive officer, said the company will strive to step up the sales by "more aggressive promotions" to offset slowdown in profit growth. He predicted the group's turnover will record an 8 percent to 10 percent increase in the second half.

"Beauty products are daily necessities, so customers will need personal care products regardless of the economic condition," Kwok said.

But investment bankers expressed concerns on the slowing retail market. Goldman Sachs said in a recent report that the negative wealth effect arising from more subdued asset prices will become a more significant drag on the consumption cycle in the medium term.

"We expect consumption growth to slow down more significantly than our previous expectations, as the impact of a softer labor market and the negative wealth effect set in," it said.

Customers will be more cautious with their spending during the Christmas and New Year's holiday season amid the sluggish economy, but "we will offer them good quality products with attractive prices," Kwok told reporters at a press briefing yesterday.

Sa Sa, which has over 140 stores and counters in Asia, will not cut jobs and guarantee annual bonus to all employees late this year.

As of Sept 30, Sa Sa has seven stores and 21 counters on the mainland. The retailer plans to add seven more there by March 2009.

Retailers in Hong Kong, ranging from household electronics stores to casual-wear shops, have felt the pinch of economic recession. One of the oldest electronic appliance chains in the city, Tai Lin Radio Services, was forced to close down in October after accumulating HK$100 million in debt.

The franchisee of Krispy Kreme Doughnuts Inc, the second-largest doughnut chain in the US, started shutting down stores in the city last month after going into liquidation.

U-Right International Holdings, operator of about 600 clothing outlets in Hong Kong and the mainland, had its funds frozen last month after it failed to pay up HK$850 million of debt.

(HK Edition 11/28/2008 page2)