Stella International Holdings Ltd. reported surpassing the dual targets of its “Three-Year Plan” for the second consecutive year in 2024, achieving a 10 percent operating margin and delivering low-teens annualized growth in profit after tax.
Stella International Holdings Ltd. reports in U.S. dollar ($) currency, unless otherwise noted in dividends with are in the Hong Kong dollar (HK$) currency.
The manufacturer of footwear for Nike, Saucony, Under Armour, Merrell, Timberland and Ugg said revenue and shipment volumes increased by 3.5 percent and 8.2 percent, respectively, to $1.55 billion and 53 million pairs, driven by the Sports and Fashion categories. The average selling price (ASP) of Stella’s footwear products decreased year-on-year due to a higher proportion of Sports products, which have a lower ASP, as well as raw material price deflation.
Operating margin for the full year expanded to 11.9 percent before changes in the fair value of financial instruments, compared to 10.7 percent in 2023, accomplished by executing its strategic initiatives focused on attracting and growing with new customers, which allowed the company to expand and diversify its customer portfolio and optimize the reallocation of its production capacity. The margin expansion was also attributable to enhanced operating leverage and efficiency improvement.
Due to these factors, the Group’s net profit increased by 21.2 percent to $170.1 million. Excluding a net fair value change from its investment in Lanvin Group, the Group recorded an adjusted net profit of $171.2 million in 2024, compared to $147.6 million in 2023. Adjusted net profit margin was 11.1 percent in 2024 (2023: 9.9 percent).
In 2024, the company delivered a Return on Invested Capital (ROIC) of 21.6 percent, more than double the 10 percent ROIC achieved in 2019, driven by working capital optimization and efficiency and a disciplined approach to capital expenditure and investments focused on maximizing returns.
The company continues to focus on managing its working capital usage and cash flow. At year-end, Stella’s net cash position was $417.6 million, an increase of 45.3 percent compared to a net cash position of $287.4 million as at December 31, 2023. The company has roughly $100 million of cash reserved for completing its upcoming new sports footwear factory in Indonesia and $180 million for Excess Cash Return Program for shareholders announced in August 2024. Therefore, the Group’s net gearing ratio was negative 37.4 percent at year-end, compared to negative 26.9 percent at December 31, 2023.
After considering the Group’s free cash flow position, strong cash level and pre-funded capital expenditure projects, the Board recommended payment of a final dividend of HK50 cents per ordinary share. Combined with the interim dividend of HK65 cents per ordinary share, this maintains the company’s standard payout ratio of approximately 71 percent set against our adjusted net profit.
The company also announced a special dividend of HK56 cents per ordinary share, fulfilling its commitment to return $60 million annually to its shareholders from 2024 to 2026, as announced in its Excess Cash Return Program in August 2024, in addition to the standard payout ratio of about 70 percent. As a result, the full-year dividend for the year ended December 31, 2024, is HK171 cents per ordinary share.
Stella also announced that 2024 marked several milestones that enhanced its market position and investor appeal. The company became a constituent of the Hang Seng Composite Index (HSCI) and qualified for the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs, providing direct access for mainland Chinese shareholders and broadening liquidity opportunities.
Outlook
Stella International forecasts that it will likely face macroeconomic headwinds and geopolitical uncertainties in 2025. Some of these, the company noted, would be partially offset as the company ramps up shipments to out-performing customers in the high-end Fashion segment and begin shipments to new customers in the Sports segment, which it believes should support a modest increase in overall shipment volumes in 2025. The company said it would continue to optimize its production allocation between its Luxury and high-end Fashion categories and its non-Sports manufacturing facilities would continue to operate at close to full utilization.
Stella International’s primary focus in 2025 will be maintaining high product quality as it gradually ramps up its new facilities in Solo, Indonesia, and Bangladesh. This controlled expansion aligns with the company’s long-term strategy of ensuring quality growth while increasing capacity for higher-margin product orders. While Stella anticipates a moderation in the pace of profit growth, it reports confidence in meeting its target of a 10 percent operating margin and low-teens CAGR in profit after tax as set out under its Three-Year Plan.
Chi Lo-Jen, CEO of the Group, said, “Despite softening consumer sentiment, we are expanding production capacity to meet solid demand from our diversified customer base. While increased U.S. trade tariffs on China may present challenges to the market, most of our customers are leveraging our diversified production base to produce in multiple countries and adopting ‘China-for-China’ production strategies, which will help mitigate potential material impacts on our business.”
Lawrence Chen, Chairman of the Group, said, “Having largely achieved the objectives outlined in the Three-Year Plan, including enhancing our category mix, improving working capital, and strengthening cost efficiency, our primary objective in 2025 is to ensure quality growth. We remain fully committed to delivering value for our shareholders and all other stakeholders.”
Image courtesy Stella International Holdings Ltd.
