China’s Exceed Co. Adheres to Expansion Plans Despite Sharp Sales Decline

Exceed Company Ltd. reported a 24.2 percent decline in second quarter revenue and said it expects revenues to decline by up to 43 percent in the third quarter as it slashes production in line with weakening demand for its Xidelong branded sports apparel and footwear. While the company attributed the sudden drop in sales to a slowing global economy, many analysts have been anticipating a correction by China’s domestic athletic brands, which expanded aggressively in the years leading up to and following the 2008 Summer Olympics in Beijing. Li Ning, China’s biggest athletic brand, reported in June that it expected its fourth quarter apparel and footwear sales to decline 20 percent and the high-teens respectively. 

Exceed’s revenue reached RMB562.0 million ($88 million) in the second quarter ended June 30, down 24.2 percent from the second quarter of 2011. Gross profit fell 29.6 percent to RMB162.0 million ($26 million), while gross margin fell 220 basis points to 28.8 percent compared with the second quarter of 2011.

 

Operating profit was RMB35.5 million ($6.0 million), representing a 67.7 percent year-over-year decrease. Net profit fell 81.1 percent to RMB30.0 million ($4.7 million).

“As anticipated, results in the second quarter were impacted by weakening consumer demand in China, which was largely attributable to the domestic and global economic slowdown,” said Shuipan Lin, Exceed's founder, chairman and CEO. “In response to the prevailing market conditions, we began in the second quarter to proactively limit production and delivery of products to better manage inventory levels at distributors.”

Despite this, Exceed said it plans to continue to “prudently” authorize new Xidelong retail locations, which grew by 342 in the year ended June 30 to 4,982. The company also said it is moving ahead with plans to triple footwear production to 9 million pairs by 2013 even though its footwear sales fell 25.1 percent in the second quarter.