Yue Yuen Industrial Ltd. reported profits fell 57.9 percent in the six months ended June 30 to $72.0 million, with declines within its manufacturing segment offsetting gains in its Pou Sheng retail business. Sales slipped 2.2 percent to $3.97 billion.

The Hong Kong-based footwear manufacturing giant reports in U.S. dollars.

On July 25, Yue Yuen had warned that it expects a decrease of approximately 55 percent to 60 percent in its profit in the six months , citing reduced orders due to a pullback in consumer demand, cost pressures and manufacturing inefficiencies

The profit attributable to owners of the manufacturing business fell 67.9 percent to $49.8 million, while the profit attributable to owners of Pou Sheng increased by 29.9 percent to RMB243.7 million. The basic earnings per share were 4.49 ents, compared to 10.67 cents for the corresponding period of last year.

Revenue Analysis
Revenue attributed to footwear manufacturing activity (including athletic/outdoor shoes, casual shoes and sports sandals) in the half decreased by 4.8 percent to $2,485.1 million, compared with the corresponding period of last year. The 6.4 percent decrease in shoe shipments was offset by a 1.6 percent increase in the average selling price during the period.

The Group’s total revenue with respect to the manufacturing business (including footwear, as well as soles, components and others) was $2,666.1 million, representing a decrease of 4.7 percent as compared to the corresponding period of last year.

For the retail business, revenue attributed to Pou Sheng increased by 3.5 percent to $1,306.2 million, compared to $1,262.2 million in the corresponding period of last year. In RMB terms (Pou Sheng’s reporting currency), revenue decreased by 2.1 percent to RMB8,964.6 million, compared to RMB9,159.4 million in the corresponding period of last year.

Yue Yuen said the narrowing of the overall revenue decline was mainly attributed to Pou Sheng’s “continuous enhancement of its sales efficiency and the establishment of fully integrated, one-stop operations.” As of June 30, Pou Sheng had 3,110 directly operated retail stores across the Greater China region, representing a net closure of 200 stores as compared with the 2025 year-end. Yue Yuen said Pou Sheng’s retail refinement strategy “centers around taking a holistic approach to new brands and sales channels development and selectively rightsizing or upgrading its existing stores, allowing it to focus on improving store-level efficiency.”


Production Review
The Group’s manufacturing business shipped a total of 118.6 million pairs of shoes, a decrease of 6.4 percent compared to the 126.7 million pairs shipped in the corresponding period of last year. The average selling price per pair was $20.95, an increase of 1.6 percent as compared to $20.61 in the corresponding period of last year.

In terms of production allocation, Indonesia, Vietnam and mainland China continued to be the Group’s main production locations by shoe volume during the half, representing 52 percent, 33 percent and 9 percent of total shoe shipments, respectively.

Gross Profit
The Group’s gross profit decreased by 10.3 percent to $823.6 million, with the overall gross profit margin decreasing by 1.9 percentage points to 20.7 percent. The gross profit of the manufacturing business decreased by 23.3 percent to $380.3 million, with the gross profit margin of the manufacturing business decreasing by 3.4 percentage points to 14.3 percent as compared to the corresponding period of last year. Yue Yuen said, “This decrease was mainly attributed to operating deleveraging caused by a contraction in sales scale, and production inefficiency during the period arising from uneven production leveling across the Group’s manufacturing facilities due to volatile short-term order demand, coupled with increased labor and overhead costs, driving up the unit costs of footwear manufacturing.”

For Pou Sheng, its gross profit margin was 33.9 percent during the period, an increase of 0.4 percentage points, supported by “effective inventory aging optimization and stringent discount management.”

Selling & Distribution Expenses, Administrative Expenses and Other Income/Expenses
The Group’s selling and distribution expenses for the half increased by 0.5 percent to $400.9 million (first half of 2025: $399.0 million), equivalent to approximately 10.1 percent (first half of 2025: 9.8 percent) of revenue.

Administrative expenses decreased by 2.9 percent to $274.7 million (first half of 2025: $283.0 million), equivalent to approximately 6.9 percent (first half of 2025: 7.0 percent) of revenue. Total selling and distribution expenses and administrative expenses decreased by 0.9 percent to $675.6 million, equivalent to approximately 17.0 percent (first half of 2025: 16.8 percent) of revenue.

Other income decreased by 6.4 percent to $45.6 million (first half of 2025: $48.7 million), equivalent to approximately 1.1 percent (first half of 2025: 1.2 percent) of revenue. Other expenses increased by 4.2 percent to $81.5 million (first half of 2025: $78.2 million), equivalent to approximately 2.1 percent (first half of 2025: 1.9 percent) of revenue.

Finance Costs and Tax Expense
Interest paid on bank borrowings, excluding finance costs on lease liabilities, amounted to $21.7 million (first half of 2025: $22.4 million), while finance costs on lease liabilities amounted to $3.7 million (first half of 2025: $4.0 million).

Income tax expense amounted to $21.3 million, representing an effective tax rate of 19.7  percent (first half of 2025: 17.6 percent) on profit before taxation of $107.9 million.

In regard to the Tax Disputes in Indonesia, as at December 31, 2025, the two Indonesian Subsidiaries of the Group had paid the Disputed Taxes in full, amounting to $109.0 million in total. Following the recovery of a portion of Disputed Taxes refunds, as at June 30, 2026, $19.4 million and $49.1 million were recognized as tax recoverable and other receivable related to Tax Disputes, respectively, in the condensed consolidated statement of financial positions.

Recurring Profit Attributable to Owners of the Company
The non-recurring loss attributable to owners of the company was $4.0 million, including a loss due to fair value changes on financial instruments at fair value through profit or loss (FVTPL) of $1.1 million and an impairment loss on interest in a joint venture of $2.9 million. The non-recurring profit recognized in the corresponding period of last year was $8.4 million, including a one-off gain on the disposal/partial disposal of associates totaling $3.4 million, and a gain of $5.0 million due to fair value changes on financial instruments at FVTPL. Excluding all items of non-recurring in nature, the recurring profit attributable to owners of the company was $76.0 million, representing a decrease of 53.3 percent compared with $162.8 million for the corresponding period of last year.

Financial Position
The Group had net borrowing of $224.3 million (December 31, 2025: net cash of $62.5 million). The Group’s gearing ratio (total bank borrowings to total equity) was 20.6 percent (December 31, 2025: 15.4 percent). Free cash inflow amounted to $40.2 million (first half of 2025: outflow of $35.6 million). The Group recognized overall net cash outflow of $29.7 million during the period (first half of 2025: net outflow of $84.3 million).

Prospects
Yue Yuen said, “With the global economy facing numerous headwinds, the Group will continue to solidify its role as a strategic supplier and strengthen its multi-location, high-end footwear development capabilities, while deepening its long-standing partnerships with leading international brands to capitalize on emerging opportunities and secure a higher-quality order mix. In the second half of 2026, the Group expects the operational environment to remain unsettled, with inflation pressures and uncertainties around the macroeconomic trajectory likely to weigh further on consumer momentum. Affected by multiple unknown factors, overall sentiment may continue to fluctuate, with the visibility of near-term order demand yet to improve.

“The Group will continue to closely monitor developments in the global economic and political environment. This includes prudently addressing potential disruptions arising from the escalation of regional conflicts. The Group will continue to leverage such developments as an opportunity to further diversify its sourcing and strengthen its mid-to-long-term local procurement strategy, while enhancing cost and expense control measures, thereby mitigating the impact of these uncertainties on its operational stability.

“The Group remains committed to its mid- to long-term capacity allocation strategy, particularly the ongoing diversification of its manufacturing base into Indonesia and India, where labor supply and infrastructure are supportive of sustainable growth. The Group will flexibly adjust the commencement timing and ramp-up pace of its newly built production lines in response to evolving demand from brand customers. Guided by its fastresponse operating principles, the Group will focus on aligning order demand with its production scheduling and labor resources to enhance stable and balanced capacity utilization, reinforcing operational efficiency.

“The Group will also further strengthen its operational resilience through its highly flexible and agile manufacturing excellence strategies, while leveraging its core competitive edges and superior adaptability. These efforts, coupled with strict cost and expense controls and its long-term digital transformation strategy, will continue to safeguard the profitability of the Group’s manufacturing business, while maintaining a healthy cash flow and a solid financial position. It will also harness its strategy of balancing sustainable value and volume growth, capitalizing on opportunities in the ‘athleisure’ market and proactively responding to ‘Kshaped economy’ trends, while fully leveraging its integrated product development capabilities – which combines automation technology with R&D strength – to build a product mix with stronger niche advantages.

“In addition, the Group will further deepen the application of its rolled-out SAP ERP system and OCP and will continue to upgrade both systems to further strengthen its framework for manufacturing excellence and sustainable corporate operating capabilities. By integrating its Manufacturing Execution System (“MES”) and by continuously broadening the application of its Digital Reporting System (“DRS”), the Group is committed to building a comprehensive manufacturing site visualization management module to monitor the real-time data indicators of key equipment. Complemented by the introduction of AI agents, this will optimize its capabilities in dynamic production allocation management, while enhancing responsiveness, enabling the Group to better navigate the fast-moving market and operational environment. This includes meeting increased demand from brand customers for greater versatility and flexibility, more efficient turnaround times, on-time delivery, end-to-end capabilities and most importantly, ESG-centric management.

“As it continues to adapt to the changing and dynamic retail landscape in mainland China, the Group’s retail subsidiary, Pou Sheng, is focused on improving sales quality while advancing operational excellence and its digital transformation strategy. It will adopt a holistic approach to resource allocation to capture opportunities, mitigate challenges and strengthen its competitive advantages as it progresses toward becoming an efficient, fully integrated one-stop retail operation.

“Looking to the future, the Group will uphold its long-time commitment to safeguard and strengthen its core operational strengths, while ensuring the continued delivery of unparalleled, comprehensive solutions to its brand partners. By embracing a forward-looking approach, the Group will further elevate its superior market positioning and leadership, while reinforcing its long-term profitability to deliver sustainable returns and create value for shareholders.”

Lu Chin Chu, chairman, commented, “While intensifying macroeconomic uncertainties weighed on our operational performance, we are proactively transforming these short-term challenges into catalysts for longterm growth. Leveraging our long-established core competitive edges and deep-rooted brand partnerships, we will continue to enhance our corporate resilience to seize new opportunities arising from market evolution. Upholding our long-term development goals, we will proactively drive corporate transformation and innovation, optimize capacity allocation and enhance operational excellence. These initiatives will further strengthen our sustainable development and create enduring value for shareholders, customers and other stakeholders. Based on the Group’s solid financial position and our relatively steady dividend policy over the long-term, the Board has resolved to declare an interim dividend of HK$0.40 per share, recognizing our shareholders’ long-standing support and trust.”

Image courtesy Yue Yuen