Pou Sheng International Holdings Ltd, which is one of the largest retailers and distributors of Adidas, Nike and other international athletic footwear, apparel and accessories brands in China, reported its operating profits more than doubled in the six months ended June 30, when its sales grew 9.1 percent to $966.6 million.

The company, which is publicly traded but controlled by footwear manufacturer Yue Yuen International Holdings Inc., attributed the increase to solid growth in the retail business sales, which more than compensated for the shrinkage in sales for the brand licensee business and the manufacturing business.
Retail results
The retail business reported revenue of $960 million, an increase of 13.9 percent compared with the same period last year. This was primarily due to improvements in store productivity within the distribution network and include results from an exclusive distribution arrangement with
the brand O’Neill, involving the regions China, Hong Kong and Macau.

As at June 30, 2014, the Group had 3,868 directly operated retail outlets and 2,405 retail sub-distributors. Within the network of the regional joint ventures, there were 691 directly operated retail outlets and 400 retail sub-distributors.

Brand licensing results
Brand licensee related sales dropped to $3.1 million, representing a decline of 77.4 percent compared with fiscal year 2013. The decline reflects the impact of various restructuring actions Pou Sheng took in the last year that reduced such sales.

Gross profit for the Group amounted to $287.9 million, or 29.8 percent of revenues. Both gross profit amount and gross profit margin were better than the comparable amounts achieved in the same period last year. The dominance of the retail business was key to achieving better figures in this area.

Fleet rationalization continues
Selling and distribution expenses and administrative expenses of the Group for the period were $278 million, representing 28.8 percent of total revenue, or flat with the last period. The company said efforts to control expenses continue to be effective, including fine tuning the store mix so that low yielding stores are closed, and new ones are opened in locations with good customer traffic.

The Group operating profit margin for the period was 1.6 percent, and operating profit was $15.8 million, a significant improvement compared with the operating profit of $7.6 million in the same period last year.

Joint ventures, which are mostly involved in the sales of domestic brand products, also performed better during the period thanks to the general improvement in consumer spending on sportswear and cleaner inventories. Discounting and promotions declined, leading to losses of $1.8 million, compared with $3.5 million in associate and joint venture losses for the year earlier period.

The Group incurred various gains (losses) from a variety of situations amounting the net loss of $2.4 million in the half year.
Losses declined sharply
Due to the aforementioned reasons, loss for the Group in this half year was $2.6 million, which was an improvement over the loss of $15.6 million in the same period last year.

The average inventory turnover period for the period was 157 days, down 20 days from 2013 thanks to tighter scrutiny of inventory at the stores and the increase in consumer spending during the half year.

The average trade receivables turnover period was 33 days, down 35 days from the year earlier period and consistent with the credit terms of 30 to 60 days that the Group gives to its department store counters and retail distributors. The average trade and bills payables turnover period was 20 days, down 2 days from a year earlier.

As at June 30, 2014, the Group’s cash and cash equivalents were $84 million, compared with $61.4 million on Dec. 31, 2013 and working capital (current assets minus current liabilities) was $546.5 million, down from $606.4 million at the end of 2013. Total bank borrowings decreased by 20 percent to $214 million from $267.6 million at the end of last year and are repayable within one year. The Group’s current ratio was 231 percent, flat with Dec. 31, 2013 levels. The gearing ratio (total borrowings to total equity) was 25 percent, down from 30 percent on Dec. 31, 2013.

During the period, net cash generated from operating activities was $91.3 million. The Group believes its liquidity requirements will be satisfied with a combination of capital generated from operating activities and bank borrowings in the future. Net cash used in investing activities was $18.1 million, of which $8.6 million was used to purchase of property, plant and equipment. Net cash used in financing activities was $30.4 million. During the period, the Group raised and repaid bank borrowings of $128.5 million and $163 million respectively.

Pou Sheng Segment Results, Six Months ended June 30, 2014




















External sales – sportswear and footwear products































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