Yue Yuen Industrial (Holdings) Ltd., one of the largest manufacturers of footwear for most major outdoor and athletic brands, together with its subsidiaries (the Group), recorded revenue of $2.00 billion in the first quarter, a decrease of 4.9 percent compared to revenue of $2.11 billion in the year-ago Q1 period.
Yue Yuen reported its Corporate and Manufacturing Segment financials in U.S. dollar terms.
Manufacturing Segment
In the first quarter, the Group’s total revenue for its manufacturing business, including footwear, soles, components, and others, was $1.25 billion, remaining “stable” compared to Q1 last year.
The revenue attributable to footwear-specific manufacturing activity, including athletic/outdoor shoes, casual shoes and sports sandals, decreased slightly (-0.9 percent) to $1.15 billion compared to the year-ago Q1 period.
The volume of shoes shipped during the quarter increased 9.1 percent to 58.8 million pairs amid a “gradual recovery trend and a more normalized order book.” The flattish, or “stable” result for the period was cycling a very weak Q1 period last year that saw revenues decrease by 16.8 percent and the volume of shoes shipped during the period decrease by 24.0 percent.
The average selling price (ASP) for footwear decreased 9.2 percent to $19.55 per pair as compared with the year-ago Q1 period due to “a high base effect” and “changes to its product mix, offsetting the recovery of shipment volumes.” The year-ago first quarter ASPs had increased by 9.6 percent to $21.53 per pair versus the 2022 Q1 period.
Pou Sheng Retail Segment
For the first quarter, the revenue attributable to Pou Sheng decreased by 12.0 percent to $749.7 million, compared to $852.4 million in the same period last year.
In RMB terms (Pou Sheng’sSheng’s reporting currency), revenue decreased 7.5 percent to RMB 5.40 billion, compared to RMB 5.84 billion in the year-ago Q1 period as a result of the “increasingly dynamic retail environment and a high base effect, despite the relatively resilient performance of its omni channels.”
Gross Profit
For the first quarter, the Group’s gross profit increased by 1.1 percent to $503.1 million, with the gross profit of the Manufacturing business rising 20.2 percent to $254.1 million, primarily offset by a decrease in the gross profit of Pou Sheng.
The gross profit margin of the Manufacturing business increased by 350 basis points to 20.3 percent of net sales as compared with the year-ago Q1 period, which was said to be primarliy due to its “significantly improved capacity utilization rate, as well as its flexible production scheduling, effective cost-reduction, and efficiency-improvement efforts.”
The gross profit margin for Pou Sheng in the first quarter was maintained at 33.2 percent of net sales, with “an unfavorable channel mix offset by well-managed discount controls.” The magnitude of the decline in Pou Sheng’s gross profit was in line with the decline in revenue.
Expenses
For the first quarter, the Group’s total selling and distribution expenses decreased by 10.6 percent to $216.1 million, or 10.8 percent of net revenue, from $241.6 million, or 11.5 percent, in Q1 2023.
Administrative expenses decreased by 2.7 percent to $138.9 million, equivalent to approximately 6.9 percent of revenue.
Other income increased by 2.8 percent to $37.1 million in Q1, equivalent to approximately 1.9 percent of revenue. Other expenses decreased 37.6 percent to $39.6 million, equivalent to roughly 2.0 percent of revenue in the quarter.
Resulting net operating expenses for the quarter decreased by $54.2 million or 13.2 percent.
Share of Results of Associates and Joint Ventures
For the first quarter, the share of results of associates and joint ventures was a combined profit of $16.2 million, compared to a combined profit of $13.7 million recorded in the Q1 period last year.
Profit Attributable to Company Owners
For the first quarter, the profit attributable to company owners amounted to $100.0 million, representing an increase of 96.9 percent compared with that of $50.8 million recorded in the 2023 first quarter.
For the 2024 first quarter, the Group recognized a non-recurring profit attributable to company owners of $0.4 million, compared to the $2.7 million recognized in the year-ago Q1 period; this included a one-off gain on the partial disposal of an associate totaling $12.6 million, mostly offset by a loss of $5.6 million due to fair value changes on financial instruments at fair value through profit or loss and a combined impairment loss of $6.6 million on interests in a joint venture and an associate.
As a result, excluding all non-recurring items, the recurring profit attributable to company owners for the first quarter was $99.6 million, representing an increase of 107.1 percent compared with $48.1 million for the year-ago Q1 period.
Outlook
The Group said it is optimistic about the long-term prospects of its Manufacturing business and is confident that the gradual recovery trend taking place in the industry, alongside improving order visibility, will allow the further normalization of its order book. However, the global footwear industry is expected to remain unsettled in the near term amidst an uncertain macroeconomic environment driven by persistent inflation, high interest rates, regional conflicts and its impact on shipping lanes.
The Group reported it would “proactively monitor the situation and adopt a comprehensive plan to increase its manufacturing workforce and capacity to balance demand, order pipeline and labor supply. The Group will further strengthen its operational resilience by enhancing efficiency and productivity through its flexible and agile strategies and leveraging its core strengths, adaptability and competitive edges, as well as cost and expense controls, to safeguard its profitability while focusing on maintaining a healthy cash flow and a solid financial position.”
Yue Yuen said it “remains committed to its mid- to long-term capacity allocation strategy, including diversifying its manufacturing capacity in regions such as Indonesia and India where labor supply and infrastructure support sustainable growth.” The company said it would “continue to exploit its strategy of prioritizing value growth, leveraging the Athleisure trend and its integrated product development capability that combines automation technology and research and development strength to seek more high-value-added orders with a solid product mix.”