Yue Yuen Industrial Holdings announced better than expected earnings and sales as net profit for the year ended September 30, 2003 jumped 34.8% to $308.2 million, up from $228.6 million last year and beating analysts’ expectations of $302.2 million.

Revenue rose 29.3% to $2.51 billion from $1.94 billion. Revenues from the core footwear business, which excludes the upstream component businesses, were up 16.8% to $2.27 billion. Total shoe pairage was up 20.9% to 157.7 million pairs, produced on over 290 production lines by year-end, a net increase of 36 lines over the year.

Future growth may not be as dramatic for the footwear manufacturer. Nike future orders from Yue Yuen were up 9.7% to $4.4 billion, but not as high as the company was expecting. The U.S. market, which fuels a majority of its sales, is seen a relatively flat. This reality, coupled with downward price pressure from U.S. footwear vendors, has left management looking elsewhere for opportunities. Currently Yue Yuen has a 17% global market share in the footwear business.

Yue Yuen plans to start producing sportswear and expand its retail business to counter this predicted slow-down. While some analysts think that the company can successfully compete in the clothing market, the vote is still out.

“U.S. footwear growth is in a bit of a lull at the moment. But I think Yue Yuen can apply the same business model to clothing,” Ada Poon, an analyst at UBS said in a published report.

The move is also precipitated by the fact that China textile trade quotas are to be phased out in 2005.
Yue Yuen also operates around 200 retail stores in China, including Asics, Converse, and Hush Puppies franchises, but analysts point out that retail makes up less than 2% of total sales and is not very profitable.

Yue Yuen chairman Tsai Chi Neng remains optimistic about next year. “The group will benefit from the gradual pick-up in consumer expenditure and the opening up of new markets… However, there may be pressure on average selling prices,” he said.