Yue Yuen Industrial (Holdings) Limited recorded revenue of $2.11 billion in the first quarter, representing a decline of 12.0 percent in US Dollar terms when compared to revenue of $2.39 billion in the year-ago comparable period. The footwear manufacturing and China-based retail company cited weakness in its manufacturing business resulting from softer global demand for footwear amid relatively high inventory levels across the industry.
For the three months ended March 31, 2023, the revenue attributable to footwear manufacturing activity (including athletic/outdoor shoes, casual shoes and sports sandals) decreased by 16.8 percent to $1.16 billion, compared with the year-ago comp period. The volume of shoes shipped during the period decreased by 24.0 percent to 53.9 million pairs due to soft global demand and a high year-ago base effect. The average footwear selling price increased by 9.6 percent to $21.53 per pair as compared with the corresponding period of last year, led by relatively resilient demand for the Group’s high-end footwear.
The Group’s total revenue with respect to the manufacturing business (including footwear, as well as soles, components and others) in the three months ended March 31, 2023, was $1.26 billion, representing a decrease of 18.1 percent as compared with the year-ago comp period.
For the three months ended March 31, 2023, the revenue attributable to Pou Sheng slightly decreased by 1.2 percent to $852.4 million, compared to $862.5 million in the year-ago comp period. In RMB terms (Pou Sheng’s reporting currency), revenue increased by 6.5 percent to RMB 5.84 billion, compared to RMB 5.48 billion in the corresponding period of last year, supported by “a sequential recovery of purchasing intent and foot traffic across mainland China.”
The Group’s gross profit decreased 12.4 percent in US dollar terms to $497.6 million in the first quarter, led by the decline in revenue, while the gross profit of the manufacturing business decreased by 19.4 percent to $211.4 million. The gross profit margin of the manufacturing business fell to 16.8 percent, representing just a slight decline of 0.3 percentage points as compared to the corresponding period in 2022, which was mostly attributed to the negative impact of the reduced capacity utilization rate resulting from weaker demand, which was largely offset by the Group’s efforts in cost-reduction and efficiency-improvement, as well as flexible production scheduling.
The gross margin for Pou Sheng decreased by 1.9 percentage points to 33.6 percent of sales, as compared to the corresponding period of 2022, attributed to discounted clearance of aging inventory.
The Group’s total selling and distribution expenses amounted to $241.6 million (11.5 percent of sales) in the quarter, compared $290.2 million, or approximately 12.1 percent of revenue in the year-ago quarter. Administrative expenses were $142.7 million (2022: $143.0 million), equivalent to approximately 6.8 percent (2022: 6.0 percent) of revenue.
Other income increased by 20.3 percent to $36.1 million (2022: $30.0 million), equivalent to approximately 1.7 percent (2022: 1.3 percent) of revenue. Other expenses increased by 22.1 percent to $63.5 million (2022: $52.0 million), equivalent to approximately 3.0 percent (2022: 2.2 percent) of revenue.
The share of results of associates and joint ventures was a combined profit of $13.7 million, compared to a combined profit of $13.4 million recorded in the year-ago comp period
For the three months ended March 31, the profit attributable to owners of the Company amounted to $50.8 million, representing a decrease of 42.6 percent as compared with that of $88.6 million recorded in the corresponding period of last year. The recurring profit attributable to owners of the company was $48.1 million, representing a decrease of 41.4 percent as compared with $82.1 million for the Q1 period last year.
The Group recognized a non-recurring profit attributable to owners of the company of $2.7 million in the quarter, representing a decrease of 58.5 percent as compared to the $6.5 million recognized in the year-ago comp period. The decrease was mainly due to the decline in gains on fair value changes on financial instruments at fair value through profit or loss.
The Group remains optimistic about the long-term prospects of its manufacturing business. However, current macroeconomic headwinds and high inventory levels across the industry will continue to weigh on order visibility and global demand for footwear in the near term. The Group will continue to proactively monitor the situation and dynamically allocate its manufacturing capacity to balance demand, its order pipeline and labor supply to control risk. It will sustain its efficiency and productivity, as well as the highest level of flexibility and agility, by leveraging its core strengths, adaptability and competitive edges to safeguard its profitability. The Group will also focus on cost control and cash flow management to ensure the healthiness of its liquidity and financial position.
The Group said it remains committed to its mid to long-term capacity allocation strategy of diversifying its manufacturing capacity in regions such as Indonesia and India where labor supply and infrastructure are supportive of sustainable growth. It will continue to exploit its strategy of prioritizing value growth, leveraging the ‘athleisure’ and premiumization trends to seek more high value-added orders with a better product mix.
Photo courtesy Yue Yuen
