Li Ning, in the midst of a three-year restructuring plan, posted a net loss of RMB1.98 billion ($319 mm) in 2012. Revenues declined 24.5 percent to RMB6.74 billion ($1.07 bn)
The loss was nearly triple the RMB742.8 million ($117 mm) on average that Wall Street was expecting. In 2001, Chinas leading sporting goods brand earned RMB631 million.
Gross margins slipped 590 basis points to 37.8 percent. The profit decline was blamed on weak sales, accounts receivables and inventory write-offs, store closing expenses and other restructuring costs.
In a statement, Li Ning noted that China’s sporting goods industry is experiencing the worst industry down cycle that the sector has seen, with years of over-expansion by many brands leading to inventory gluts. Many of the problems came demand for athletic gear was over-estimated following the 2008 Beijing Olympics.
Last year, TPG, the buyout firm, was brought in as a strategic investor and the Transformation Plan was announced in July 2012 with a goal of transitioning from a traditional wholesale to a retail-oriented business model. Li Ning said it quickly became apparent that efforts on channel clearance needed a more drastic approach and had to be done on a much larger scale, and the Channel Revival Plan was added in December 2012.
Progress cited as part of its restructuring efforts included the closing of 1,821 Li Ning brad conventional stores, flagship stores, factory outlets and discount stores to close the year with 6,434. Li Ning rolled out an improved pricing strategy with broader coverage of key customer demographics, conducted successful test pilots for faster replenishment, paired its inventory to healthy levels, and hired several industry veterans with experience in supply chain, marketing, sales, product development and design.
Licensing rights to the Lotto brand were also renegotiated, and management shifted its focus more on its core Li Ning brand of apparel and footwear.
On the marketing front, Li Ning refocused its sponsorship efforts around the Chinese national teams as well as around its three major sporting goods categories: basketball, badminton and running. It also formed a sponsorship and brand partnership with Dwayne Wade of the Miami Heat.
“We have achieved a lot in making some very meaningful and fundamental changes to the business, said Jin-Goon Kim, executive vice chairman of Li Ning who was brought in by TPG, in a statement. While this progress has not translated yet to our financial results, we are very focused and determined, and have a clear strategic vision in what we want to achieve as we are pioneering solutions and practices to overcome these industry issues.”
