A key indicator may show that increasing oil prices and a growing Chinese economy are apparently working their way into the footwear manufacturing pipeline. Last week, Chinese footwear manufacturer Yue Yuen Industrial Limited reported a profit decline in the fiscal third quarter ended June 30, due primarily to increased material costs, energy costs, and increasing labor costs. A slight increase in average unit price was not enough to offset the increased costs, resulting in a 230 basis point decline in gross margins versus last year.

Total sales increased 11.9% to $859 million in fiscal Q3 from $768 million. Gross margin declined to 21.7% of sales from 24.0% in the year-ago period. Net profit declined 9.9% to $84.0 million, compared to $93.2 million in fiscal Q3 last year.

The company's growing retail presence in China led sales in that category to nearly double its share of total sales for the period. The U.S. made up less of the total share of sales in the quarter, declining 230 basis points as a percent of revenues. Meanwhile, Canada, Europe, and Asia (helped by retail) outpaced the company’s growth.

YY saw 16% growth for the eleven month YTD fiscal period through August, reporting $2.89 billion in sales for the period. Order flow remains healthy through the balance of the year, but high crude oil prices and fluctuation in prices of petrochemical products will continue to “exert pressure” on production costs.

Yue Yuen Industrial Ltd.
Fiscal Third Quarter Sales Breakdown
(in $ millions) 2005 %/ttl 2004 %/ttl Change
Category Breakdown
Athletic $527.5 61.4% $476.5 62.0% +10.7%
Casual & O/D $152.8 17.8% $134.2 17.5% +13.9%
Sport Sandals $7.4 0.9% $7.1 0.9% +4.2%
Soles/Comps $116.5 13.6% $116.7 15.2% -0.2%
Retail $43.5 5.1% $19.7 2.6% +121%
Others $11.6 1.4% $13.8 1.8% -15.9%
Geographic Breakdown
United States $320.4 37.3% $304.1 39.6% +5.4%
Canada $17.8 2.1% $14.7 1.9% +21.1%
Europe $253.0 29.5% $219.0 28.5% +15.5%
So. America $18.0

About The Author

Teresa Hartford

Teresa Hartford Editorial & Creative Director | SGB Media teresa@sgbonline.com | 704.651.5741

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