Yue Yuen Industrial Holdings announced lower than expected earnings as net profit for the year ended September 30 fell 1.6% to $303.3 million, compared to $308.2 million last year. The majority of the profit shortfall came from increased raw material prices and the associated spike in cost of goods sold. Gross margins fell 220 basis points to 23.9% of sales compared to 26.1% last year. YY said it had not seen volatility in the raw material market to this extent in over five years.
Revenue rose 8.4% to $2.72 billion compared to $2.51 billion last year. Sport sandals and casual/outdoor shoe sales led the way with strong double-digit sales increases. Total shoe pairage was up 6.2% to 167.5 million pairs, compared to 157.7 million pairs last year, produced on over 309 production lines by year-end, a net increase of 19 lines over the year.
Future growth may not be as dramatic for the footwear manufacturer, but the company does see a huge potential retail market in China. Yue Yuen expanded its retail presence in mainland China by over 30% this year to 300 shops in Beijing alone and plans to have over 1,000 shops before the 2008 Olympics.
Yue Yuen acknowledges that 2005 is “not without challenges” but the company will continue with its plans to expand horizontally with new product lines and vertically by increasing its efforts at retail growth in China. However, management said that its key focus will remain on its core manufacturing business, which has experienced sales growth of 15% so far in 2005.
