Yue Yuen Industrial (Holdings), Inc. reported Q3 revenue increased 38.4 percent in the three-month period ended September 30, driven in large part by strong growth and easy year-ago comparisons in its manufacturing businesses in Vietnam, partially offset by weak retail sales in mainland China amidst a volatile retail sentiment following continued COVID-19 outbreaks.
Total revenue for the footwear manufacturing giant, which also runs corporate stores in Asia for some of the biggest brands in the market, rose 38.4 percent to $2.262 billion in the third quarter, compared to $1.634 billion in the year-ago quarter.
For the year-to-date period, Yue Yuen reported revenue of $6.972 billion in the nine months ended September 30, 2022, representing an increase of 8.2 percent compared to revenue of $6.441 billion in the prior-year YTD period. The results were a clear sequential improvement for the company after posting a 4 percent revenue decline through the first quarter and a 2 percent decline through the second quarter.
Driving the improvement was an easier anniversary number for the footwear and components manufacturing business versus the Q3 period in 2021, which was adversely affected by the disruption to its manufacturing operations in Vietnam. Manufacturing revenues surged 84.6 percent to $3.189 billion in the most recent third quarter after growth in the mid-teens in the first half of the year.
Total manufacturing business revenue, including footwear, soles, components, and others, in the nine months ended September 30, 2022, was $4.793 billion, an increase of 31.1 percent compared with the Q3 YTD last year.
Within the manufacturing numbers, the company saw Athletic & Outdoor footwear revenues jump 87.6 percent to $1.285 billion in the third quarter, while Casual Shoes & Sports Sandals revenues grew 80.1 percent to $198.1 billion, and the Soles, Components & Other categories increased 63.0 percent $121.3 billion for the three-month period.
The company produced 68.9 million pairs of shoes in the third quarter.
The revenue attributed to footwear manufacturing, excluding Soles, Components & Other, increased 33.0 percent to $4.389 billion for the nine-month YTD period. The volume of shoes shipped during the period saw a strong year-on-year growth of 19.0 percent, reaching 213.0 million pairs, which was attributed to solid global demand for its footwear products, on top of a low-base effect following disruptions to its Vietnam operations in the third quarter of 2021. The average selling price increased by a robust 11.8 percent to $20.61 per pair as compared with the corresponding period of last year, led by resilient demand for the company’s high-end footwear and its ongoing efforts to refine its product mix by obtaining more high value-added orders.
The Athletic & Outdoor Shoes category accounted for 85.4 percent of the company’s footwear manufacturing revenue in the Q3 YTD period, and Casual Shoes & Sports Sandals accounted for 14.6 percent of footwear manufacturing revenue.
When considering Yue Yuen’s consolidated revenue, Athletic & Outdoor shoes represented the company’s principal category in the YTD period, accounting for 53.8 percent of total revenue.
From a finished product regional destination perspective, Europe saw the most growth for the third quarter YTD period, posting revenue growth of 45.4 percent for the YTD period. The region still holds the #2 global share position with 26.2 percent of sales in the YTD period, behind the 34.4 percent share for the U.S. market and just ahead of the 25.2 percent for Other Markets outside Mainland China. Footwear bound for the U.S. registered 31.8 percent growth for the YTD period and the Other Markets posted 39.7 percent growth, while Mainland China saw a 0.2 percent decline that reduced that market’s global share to 13.9 percent of sales from 18.2 percent in the year-ago nine-month YTD period.
YY said in its third quarter YTD report that economies of scale helped push up the operating leverage, together with stringent cost control measures, supporting a progressive improvement of the margins of its manufacturing business. The company also continued to oversee accelerated pricing growth, prioritizing quality growth and higher value-added orders and leveraging on the ongoing “athleisure” and “premiumization” trends while further optimizing production allocation amid volatile visibility.
On the other side of the company’s portfolio, YY reported that its retail subsidiary, Pou Sheng International (Holdings) Ltd., experienced a “bumpy recovery,” according to its latest report. Despite a gradual improvement in store traffic throughout the third quarter in shopping venues and cities in which Pou Sheng operates, volatile and mixed retail sentiment and recently more stringent COVID-19 control measures hindered its recovery momentum.
Pou Sheng saw third quarter retail revenues fall 14.0 percent to $657.5 million, down from $764.7 million in the year-ago quarter.
Retail revenues declined 21.8 percent to $2.178 billion for the nine-month YTD period, compared to $2.785 billion in the corresponding period of last year. Still, the decline was seen as a sequential improvement against the Q2 YTD results that saw retail revenues fall 24.7 percent versus the comparable period in 2021. In RMB terms (Pou Sheng’s reporting currency), revenue declined 20.1 percent to RMB14.394 billion, compared to RMB18.021 billion in the 2021 comp period despite the “resilient performance of its Pan-WeChat Ecosphere.” The decrease was mainly attributed to volatile foot traffic in the shopping venues and cities where Pou Sheng operates following COVID-19 lockdowns, disrupted logistics and last-mile delivery, and control measures introduced by local governments in different parts of mainland China.
Pou Sheng retail same-store sales declined 10.3 percent in the third quarter, the segments best performance since 2021 first quarter when the China lockdown efforts had subsided before the Omicron varian hit. The same-store sales decline was on top of a 25.3 percent decline in the year-ago Q3 period, which was against a 13.0 percent same-store sales decline in the 2020 Q3 period.
The company said Pou Sheng continued to accelerate the development of its digital business to offset its sluggish in-store performance, further optimizing its online channels to enhance its channel mix. It also continued to progress its retail refinement strategy, streamline its brick-and-mortar network while further deepening its engagement with customers and its business partners.
Consolidated company gross profit increased 74.7 percent to $562.2 million in the third quarter as gross margin improved 520 basis points to 24.9 percent of sales on very favorable comparisons against the weak third quarter last year. The nine-month YTD period gross profit rose 6.3 percent to $1.658 billion even as gross margin dipped 44 basis points to 23.8 percent of sales.
Third quarter gross margin of 19.7 percent of sales for the manufacturing segment, the highest since the 2018 fourth quarter when it reached 20.3 percent of sales. The number for the three-month period is even more notable considering the 2021 third quarter gross margins came in at a meager 6.0 percent of sales. The gross profit for the manufacturing business increased by 55.7 percent to $872.9 million in the Q3 YTD period, while the gross profit margin expanded to 18.2 percent, representing an increase of 2.9 percentage points as compared with the comparable YTD period of 2021.
This represented a further sequential improvement of the gross profit margin for the manufacturing business on a quarter-on-quarter basis and a reversal of the declining trend seen in the last two quarters on a year-on-year basis, and was attributed to improved capacity utilization and production efficiency during the period, better operating leverage brought by a recovery in sales scale, as well as a low-base effect following disruptions to its Vietnam operations in the third quarter of 2021.
Gross margins for the retail business reached 37.3 percent of sales in the third quarter, its highest level since Q2 2021 when the Pou Sheng saw margins surge to 38.4 percent, the highest level in years. The 2022 Q3 gross margin was up 200 basis points from the 2021 third quarter levels. The nine-month YTD gross profit margin for Pou Sheng increased slightly by 10 basis points to 36.0 percent of sales, compared to the comp period last year. The resilient year-on-year and quarter-on-quarter performance of the growth profit margin was mainly attributed to “an enhanced channel mix and a disciplined discount control strategy undertaken within the current volatile retail environment.”
Profit attributable to owners of the company was $270.1 million for the YTD period, representing an increase of 171.2 percent as compared with $99.6 million recorded in the corresponding period of last year. The recurring profit attributable to owners of the company was $262.5 million, representing an increase of 283.8 percent as compared with $68.4 million for the corresponding period of last year.
The company recognized a non-recurring profit attributable to owners of the company of $7.6 million in Q3 YTD due to a gain of $4.5 million due to fair value changes on financial instruments at fair value through profit or loss (“FVTPL”) as well as a gain of $3.6 million on the disposal of a joint venture. In the same period of 2021, the company recognized a non-recurring profit attributable to owners of the company of $31.2 million, which included a gain of $14.2 million due to fair value changes on financial instruments at FVTPL, as well as a combined one-off gain of $32.0 million on the disposal of a joint venture and associates, that was partly offset by an impairment loss of $14.0 million on interest in an associate.
*Yue Yuen does not report quarterly results but does report cumulative year-to-date (YTD) sales at the end of each calendar quarter. SGB Media does the math to generate the quarterly figures, subtracting the Q2 YTD numbers from the Q3 YTD numbers. All currency is expressed in U.S. Dollars (USD).
Photo courtesy Yue Yuen/Fashion Network
