As retailers de-stock inventories and brands follow suit, the backup and subsequent slow-down have hit the manufacturing sector with more ferocity.

Yue Yuen Industrial (Holdings) Limited, one of the largest athletic and outdoor footwear manufacturers worldwide, is warning the market that the year-to-date slow-down in footwear deliveries through June will significantly impact first-half earnings. 

Yue Yuen Industrial (Holdings) Limited, together with its subsidiaries, announced, according to the Inside Information Provisions under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

Yue Yuen’s Board of directors said late Friday that based on its preliminary review of the unaudited consolidated financial statements of the Group for the six months ended June 30, 2023, it expects to record a decrease of 50 percent to 55 percent in profit attributable to owners of the company for the period as compared to the profit of US$175 million for the corresponding period in 2022.

Yue Yuen reported that the first half of manufacturing revenues were down 19.3 percent after a 24.2 percent decline in June. Based on the information available to the Group, the decrease in profit was said to be attributable to:

  1. A decline in manufacturing business revenue. The revenue generated from the Group’s manufacturing business decreased by approximately 19 percent compared with the corresponding period of 2022, as the ongoing inventory de-stocking cycle across the footwear industry pushed down the short-term performance of the Group’s manufacturing business;
  2. Operating deleverage within the manufacturing business. A weak order book and low visibility impacted the capacity-using rate and operating efficiency of its manufacturing business, resulting in operating deleverage that affected its profitability; and
  3. One-off charges related to capacity adjustments. During the quarter, the Group adjusted its manufacturing business to address the volatile capacity usage and, as part of its long-term capacity allocation plan. The related severance expenses amounted to approximately US$21 million.

Yue Yuen said its retail subsidiary Pou Sheng International (Holdings) Limited saw “decent recovery momentum during” the first half following the lifting of all pandemic control measures in mainland China. In RMB terms, Pou Sheng’s revenue increased by approximately 11 percent as compared with the corresponding period in 2022, while the profit attributable to owners of Pou Sheng increased by approximately 1,654 percent to RMB305 million, partly offsetting the decline of the Group’s manufacturing business.

The uncertain macroeconomic outlook with conservative approaches in the industry is forecasted to continue to weigh on the Group’s manufacturing business. The Group reported it would continue to monitor the situation and allocate its manufacturing to balance demand, its order pipeline and labor supply. The Group said it would also focus on cost controls and cash flow management to ensure liquidity and financial position. It is also preparing the unaudited consolidated interim results of the Group for the first half. 

The information in Friday’s announcement comes from a preliminary assessment by the company’s Board regarding the financial statements of the Group for H1, which were not audited nor reviewed by the auditor of the company.

Photo courtesy Yue Yuen