Hong Kong-based apparel maker, distributor and retailer Win Hanverky is shifting its focus away from a stagnant U.S. economy and toward China’s booming domestic market in 2008.

In the United States, Win Hanverky's  primary business is providing NYL-branded active and outerwear to about 30 department stores and retail chains. It sees more promise this year, however, in China, where it is the exclusive distributor for Umbro and three European soccer teams.  In 2008, it expects Olympic soccer at the Beijing games to give that business a big boost.

The company plans to increase its retail distribution in China by more than a third to 1,500 stores, boost advertising and marketing, license new brands, open soccer concept stores for adidas and Nike and multi-brand Futbol Trend stores, and manufacture more of the Umbro products its distributes.

Win Hanverky will boost garment production by 25% in 2008 by enhancing productivity and utilization at its factories, particularly in Vietnam, to help mitigate “the pressure from labour cost and production overhead and also the impact of RMB Appreciation.” The company also manufactures in China, Jordan and the Philippines.

The shifts follow 2007's strong sales growth, but thinning margins, according to financial figures released by the company last week. 

In 2007, total sales at Win Hanverky rose 33.6% in 2006 to HK$3.32 billion ($425.6 mm), from HK$2.49 billion ($320.5 million), the company said. However cost of goods sold rose by 38%, reducing gross margins by 240 basis points to 32.3% from 2006.

Operating profits rose 13.4% to HK$400.1 million ($51.3mm), compared to HK$352.9 million ($45.4mm). As a percentage of revenue, selling, distribution, general and administrative costs rose 40 basis points to 21.3%. The company’s three largest expenses – raw materials, finished goods and employee benefits – rose by 40.2%, 41.7% and 45.2% respectively. That left net profits of HK$334.7 million ($42.9mm), up 18.1%. Net profit margins, however, dipped to 10.1% from 11.4%.

Inventories, meanwhile, soared 72% to HK$486.1 ($62.3mm).

A breakout of its three segments showed its Chinese sportswear distribution and retail segment earning operating profit margins of 26.9%, compared to margins of 10.2% and 15.7% respectively for its sportswear manufacturing and active and outer wear manufacturing and distribution segments. Sales of the latter fell by HK$87.9 million ($11.27mm), or 14.4%, to HK$522.0 million ($66.9 mm).

“Given the weak U.S. economy, the Group expects sales of this segment will be further reduced,” the company said in its annual report. “The Group has started dialogue with Martin Stuart Limited, owner of the NYL brand, about how to keep margins at reasonable levels for parties concerned.”

The company said orders at its active and outwear segment for the first half of 2008 are off 10% from the same period in 2007.