Posted on: Friday, February 18, 2005

Business outlook optimistic

By Andrew Gomes
Advertiser Staff Writer

Optimism among Hawai'i businesses is riding high with the state's surging economy, but rising costs are taking a toll on profits, a recent survey of 400 companies suggests.

The survey also showed that most retailers are upbeat about their prospects in the next year or two, though a significant number are voicing uncertainty over the longer term.

"I think caution is starting to set in," said Carol Pregill, executive director of the roughly 200-member trade association Retail Merchants of Hawaii. "I think they're saying this is almost too good to be true."

The overall business outlook from the survey is generally positive, which the study's authors said isn't surprising given Hawai'i's strong economic growth over the past several years.

The survey, conducted by Qmark Research & Polling for the Business Banking Council, intends to provide a general read on the performance and expectations of Hawai'i businesses.

"If businesses are more optimistic, we would expect that they will be more willing to invest in their businesses, which will help Hawai'i grow," said Constance Lau, president and CEO of survey sponsor American Savings Bank.

Qmark polled a cross-section of businesses, including retailers, doctors, restaurants and contractors from Jan. 10 to 28.

Respondents represented all sizes of companies, about equally divided among firms with employee counts from 3 to 9, 10 to 49, 50 to 99 and more than 100.

Of the companies surveyed, 61 percent said they see signs the economy is improving, and 54 percent expect economic improvement will continue throughout the year.

When it came to performance of the businesses surveyed, results were slightly weaker compared with responses from a similar survey conducted a year earlier.

Nearly 55 percent of respondents reported increased 2004 gross revenue, which was 2 percentage points lower than 2003. Pre-tax profit was up for 44 percent of companies surveyed, which was 3 percentage points lower than 2003.

Nearly 25 percent said revenue and pre-tax profit declined last year, which was about 5 percentage points higher than results from a year earlier.

For retailers alone, revenue increased for 65 percent of respondents while pre-tax profit increased for just 46 percent, suggesting costs are eating up additional revenue.

Greg Meier, president of Coffee Partners Hawaii, the local licensee of Starbucks and Jamba Juice, said there have been significant cost increases for construction, fuel, freight and healthcare that have cut into a roughly 35 percent boost in business primarily driven by opening new stores.

Pregill said she expects continued growth among retailers this year fueled by what is projected to be rising personal income allowing consumers to spend more.

Such optimism is reflected in about half of the 129 retailers surveyed who said they are "very optimistic" about the outlook for retailing this year.

But interestingly, 70 percent of retailers said they are somewhat or very optimistic about the coming year, compared with 84 percent of respondents in last year's survey. Fewer were pessimistic about this year, only 6 percent compared with 12 percent last year. But 25 percent were uncertain, compared with 3 percent last year.

Pregill noted that the uncertainty may not be bad, "because too much optimism can make companies complacent."

Carol Ai May, vice president of the kama'aina hardware chain City Mill, said she is very optimistic about the next two years.

"We think that the low interest rates, economy, construction and all the refinancing done in the last year contributed to more discretionary spending in the marketplace," she said.

The Business Banking Council survey has been conducted since 1998, toward the end of the state's near decade-long economic downturn.

Survey results aren't fully comparable with previous years because different businesses are surveyed each time. But the confidence level in the survey is typically 95 percent, meaning that results should not vary by more than 5 percent if the survey were repeated.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.