Anta Sports Products Ltd. said it expects profits to decline up to 25 percent in the first half ended June 30 and up to 35 percent after taking into account its share of the loss from the Amer Sports acquisition.

Anta reported all stores and factories have resumed normal operations and sufficient cash to weather the situation with at least RMB20 billion ($2.86 bn) in cash available.

In a statement, Anta said it expects to show a decrease in operating profit in the period. Sales of Anta branded and other certain branded products are expected to be flat or down no more than 5 percent as a result of COVID-19.

The operating profit decline also reflects a slight decrease in its gross profit margin of both the Anta brand and Fila brand businesses. The Anta brand, which adopts a wholesale model, faced sales return and inventory buyback of first-quarter 2020 products and saw subsequent resale at a lower gross profit margin.

The Fila brand, which adopts a direct retail model, saw increased retail discounts through inventory clearance promotional campaigns. Other factors driving the lower margin include an increase in loss allowance for trade receivables due to the increase in expected loss rate under the impact of COVID-19 as a result of the company’s intention to provide flexibilities on credit period to its distributors. Finally, the overall staff wages were higher this year than that in the 2019 Interim Period as there was new hiring in the second half of 2019 and early 2020 before the company implemented a temporary suspension in new recruitment and annual salary review in February 2020 under the impact of COVID-19. The latest period also included the cost related to equity-settled share-based payment transactions of awarded shares granted in November 2019 under the Group’s share award scheme which was partially amortized in the 2020 Interim Period.

Along with the operating profit decline, the net profit decline reflects a higher share of loss from its Amer Sports.

The company added, “Since the early stage of COVID-19, the Group has already communicated with distributors closely to monitor their sales performance, to review their trade fair orders made in coming quarters in light of the actual situation as well as to take appropriate measures to minimize any potential risk.

“As of the date of this announcement, all stores and production facilities of the Group in China have resumed normal operation. Furthermore, the Group has sufficient cash on hand and credit facilities to meet its current business needs. The Board estimates that the Group has not less than RMB20 billion of cash and cash equivalent, fixed deposits held at banks with maturity over three months and pledged deposits as of 30 June 2020, as compared to that of about RMB12.6 billion as of 31 December 2019. The Group has also made an all-out effort to reduce costs to preserve working capital and profit. As the industry leader, the Group has the risk resistance capacity and proven track record, hence the Group is confident in successfully managing the impact of the COVID-19.”

The final results will be reported in August.

In a separate release, the company noted that retail sales (in terms of retail value) in the second quarter showed low single-digit negative growth for Anta branded products, low teens positive growth for Fila branded products, and 25-to-30 percent positive growth for other branded products. Other brands offered by the company, including some like Fila licensed for the China distribution, include Descente, Kolon Sport, Sprandi, and Kingkow.

Retail sales (in terms of retail value) in the first half showed low teens negative growth for Anta branded products, mid-single-digit positive growth for Fila branded products and high-single-digit positive growth for other branded products.

Photo courtesy Anta