Mitra Adiperkasa, the franchise holder of brands including Zara and Nine West, posted a 12 percent decline in first-half profit, citing higher costs.
The Jakarta-based company known as MAP, which also holds the rights to Starbucks, said in a statement that its net income fell to Rp 145.7 billion ($14.2 million) in the January-June period from Rp 166 billion a year earlier.
Cost of goods sold rose 27 percent to Rp 2.19 trillion. Sales expenses climbed 34 percent to Rp 1.2 trillion.
Shares in MAP plunged 5.1 percent to Rp 6,500 on Thursday after the release.
Fetty Kwartati, corporate secretary of MAP, told the Jakarta Globe that the biggest cost increases can be seen in payroll.
“Not only is the minimum wage higher, but we have also added a lot of new employees as part of our expansion,” Fetty said.
Jakarta’s government has raised the minimum wage by 44 percent this year, while other regional governments have followed the increase and more plan to have a similar raise.
MAP’s interest costs have also risen 39 percent to Rp 99.5 billion as it has taken up larger loans to help its expansion, Fetty said.
MAP is setting aside Rp 900 billion in capital expenditure for the expansion.
By the end of the first half of this year, the company had added 205 new stores to a total of 1,588 stores nationwide, bringing in various new fashion brands including Cotton On, Swarovski and Thomas Pink.
The company also recently opened French department store Galeries Lafayette, which will target Jakarta’s upper income households.
This year, the company is hoping to open 300 new stores, or about 100,000 square meters of retail space.
Fetty said in a meeting last month that the company is not overly concerned with the rising inflation as MAP targets the middle to upper class spender, which are “resilient” against price hikes.
Despite falling profits, company revenue rose 27 percent to Rp 4.4 trillion in the first half of this year from Rp 3.5 trillion a year earlier, the company statement said.
This year the company is targeting 25 percent growth in revenue from Rp 7.59 trillion revenue last year. The first half revenue represents 46 percent of MAP’s full year target, based on the Jakarta Globe’s calculation.
“We remain focused on our strategy of driving top line growth to increase market share, and investing in key initiatives,” Fetty added in the statement.