* H1 profit edges up 0.1 pct, turnover largely flat
* Same stores sales down 1.6 pct vs 0.9 pct fall a year ago
* Says to expand in lower tier cities, adding 25 outlets in H2
* Stock falls 3.7 pct to lowest since June 4 (Adds management comment, stock price)
HONG KONG, Aug 9 (Reuters) - Sun Art Retail Group Ltd's first-half same-store sales dropped at a steeper pace than the year-earlier period, reflecting the competitive challenges facing China's top hypermarket operator.
The retailer, backed by China's biggest e-commerce company Alibaba Group Holding Ltd, said late on Wednesday its first-half same-store sales fell 1.56 percent, compared with a 0.9 percent decline a year ago.
Its net profit edged 0.1 percent higher to 1.758 billion yuan ($257.2 million) for the six months ended June, while turnover held largely flat at 54.06 billion yuan.
Gross profit margin inched up 0.6 percentage points to 23.9 percent from a year earlier.
"Looking ahead, our brick-and-mortar stores will continue to practice the integration with both online and offline channels," Chief Executive Ludovic Holinier said in a statement.
"The group will endeavor to accelerate the deployment of multi-format and enhance footfall with more coverage offline," he said, adding multiple projects had been launched since it established a strategic alliance with Alibaba last November.
Sun Art said its fresh food service, the Taoxianda initiative, in partnership with Alibaba Group, had been expanded to 165 brick-and-mortar stores, covering 93 cities within 17 provinces and municipalities nationwide.
Sun Art rolled out the initiative in March to deliver orders in an hour, within a three-kilometer radius of a store, and to digitize store operations and raise their efficiency.
"We have less customers going into the store, more online, so we need less employees," CFO Jean Chausse told a results briefing on Thursday, adding the company would continue to trim labour costs.
"We can automotise in the store," Chausse said. "One of the most promising solutions is self-scanning and self-checkout. Maybe Alibaba can help with this."
The group, which has a total of 472 hypermarkets in China, opened 11 new hypermarket complexes in the first half. It said it would continue to expand into lower tier cities, adding 25 more by the end of 2018.
Its original plan was to add 35 new stores in 2018.
The stock, which fell as much as 3.7 pct to its two-month low in the morning, trimmed loss later to HK$9.61 in early afternoon, still down 1.5 pct. That compared with a 1.2 percent rise in the broader market. ($1 = 6.8344 Chinese yuan) (Reporting by Nicole Pullinger, Timothy Chan and Donny Kwok; Editing by Amrutha Gayathri and Sunil Nair)