China Resources Enterprise reports loss in Q3 on Tesco JV

HONG KONG, Nov 14 (Reuters) - Retail-focused conglomerate China Resources Enterprise Ltd (HKSE: 0291.HK - news) (CRE) reported a net loss in the third quarter due to the financial impact arising from its joint venture with British grocer Tesco plc (Xetra: 852647 - news) and flagged challenging times ahead.

China's government-backed CRE and Tesco completed the joint venture this May, under which CRE agreed to combine its hypermarkets or supermarkets across China and Hong Kong with Tesco's outlets in China.

"In the short to medium term, the group's overall profitability may come under significant pressure as it takes time to turn around the recurring loss-making Tesco stores in China and integrate them with its other supermarket businesses," CRE said in a statement on Friday.

The conglomerate reported a net loss of HK$71 million ($9.2 million) compared with a net profit of HK$920 million in the year-ago period.

CRE, a rival of hypermarket operator Sun Art Retail Group Ltd, said turnover rose 17.2 percent to HK$47.55 billion in the three months ended September. Sales of high-end products were hurt by the central government's frugality measures, it added.

Last week, the state-backed company warned of a "significant decrease" in third-quarter profit due to the cost associated with the Tesco joint venture.

Growth in China's retail market has stalled since the government started to discourage extravagant spending among public officials, while competition with e-commerce has also pressured earnings, CRE said earlier.

Shares (Frankfurt: DI6.F - news) of CRE were up 1.4 percent by Friday afternoon, outpacing a 0.1 percent fall in the benchmark Hang Seng Index . (1 US dollar = 7.7549 Hong Kong dollar) (Reporting by Donny Kwok and Denny Thomas; Editing by Biju Dwarakanath)