Li Ning Co Ltd. reported a 50 percent drop in its first half profit on a 4.8 percent decline in sales. The Chinese-athletic footwear and apparel giant said the operating environment is expected to remain challenging due to intensifying competition among brands and escalating costs.
“The ongoing intensification of competition in the sporting goods industry in China means that competition among various brands on sales channel, sports resources and media resources will heighten,” Chairman Li Ning said in a statement. “In addition, each segment of the value chain of the industry will remain affected by cost escalations,” Li added.
The company, founded by a famous Chinese athlete with the same name who is known as the Prince of Gymnastics in China, said its first half net profit fell 49.5 percent to 293.7 million yuan ($46 million).
Revenue was 4.3 billion ($674 million), a decreas of 4.8 percent. Earnings before interest, tax, depreciation and amortisation (EBITDA) was 568 million yuan ($89 million), down 37.8 percent versus the year-ago period.
Its margin of profit was at 6.8 percent during the first half period, down from 12.9 percent the same period in 2010.
In its Management Discussion and Analysis section, Ning stated,
“China’s economy continued to record stable growth in the first half of 2011 , albeit at a slower rate than the same period last year. The role of investment in driving the country’s GDP abated somewhat as macroeconomic policies such as measures to cool the property market were launched, but it yet remained a key driver for the economic growth. As recovery of the global economy was slow, the growth of China’s export saw steady deceleration as compared to earlier in the year. Consumer Price Index reached a record high, while the actual social consumption saw slower growth than the same period of 2010.
The sporting goods industry in China continued to show double-digit growth, however, it has also experienced changes that are marked by consumers’ increasing awareness towards branding and sports functionality. At the same time, rising costs have inflicted far-reaching impacts on the overall structure of the industry and have had a profound influence on different segments of the industry value chain. On the other hand, competition within the industry continues to intensify and the overall competitive landscape is shifting. The Group believes that the industry will undergo transformation in the next two to three years.”
The Group has always adhered to its core strategy and mission − focusing on branding and product innovation and competing on differentiation. Through our focus on the essence of sports, we inspire people’s desire and power to make breakthroughs. In view of the industry environment, the Group continued reviewing external changes against its development strategies and adjusting the implementation of its strategies. The Group has proactively introduced key measures, including brand revitalisation as well as distribution channel reforms, so that it would be in a position to better adapt to the industry development trend while fulfilling the Group’s growth objectives at different stages.”
The Group is currently in the early stages of this reform process. Change cannot be achieved within a short period of time and we have anticipated that there will be short-term pain during the reform process in the next two to three years. Consistent with its constant communications with investors since January this year, the management
has envisaged that, in the near term future, the Group’s operating performance and financial indicators will both be affected. More importantly, throughout the reform process, the management has been analysing and reviewing the situation on an ongoing basis in order to adjust and improve on its execution plan, which will lead the Group into a healthier development track.”
Li Ning said margin of profit for the full year of 2011 is expected to decline by about 1-2 percentage points as compared with the first half of 2011.
The number of Li Ning brand retail stores reached 8,163 as of June 30, a net increase of 248 stores, the company said.
