Li Ning changes tack to keep profit growth

PUBLISHED : Friday, 20 March, 2009, 12:00am
UPDATED : Friday, 20 March, 2009, 12:00am

Li Ning, the mainland's top sportswear maker, will employ more prudent tactics to sustain its business this year as it fights dimming economic conditions.

The company will focus on improving store efficiency to boost profit margins instead of aggressive expansion, a recognition that the sportswear market is suffering from excess inventory following the Beijing Olympic Games.

Li Ning said advance sales orders from distributors, which normally indicates sales performance six months ahead, had slowed to 12.7 per cent growth in the third quarter compared with 42 per cent and 31.6 per cent growth in the first and second quarters.

Driven by the integrated sports marketing strategy of the Beijing Olympics in August, Li Ning's net profit grew 52.3 per cent to 721.27 million yuan (HK$818.78 million) last year. Revenue increased 53.8 per cent to 6.69 billion yuan.

'The sporting goods industry has entered into a new cycle of growth after the conclusion of the Beijing Olympics ... [and] on the back of the global financial crisis, the Chinese economy is facing various challenges,' said chief executive Zheng Zhiyong yesterday at the company's post-results briefing.

Capital expenditure this year will decline to 200 million yuan from last year's 260 million yuan.

Li Ning said it would put a lot of effort into maintaining sales order growth amid the difficult economic situation.

Putting aside the cautious remarks of the company's management, analysts said Li Ning was well positioned to ride out the challenging operating environment.

'[The company] has established brand reputation, solid management and good execution ability,' said analyst Alice Hui at DBS Vickers.

However, its liabilities to asset ratio has risen to 51.8 per cent from 37.3 per cent in 2007, which also caught the attention of analysts.

'Selected distributors are indeed facing greater pressures ... due to weaker retail sentiment towards the end of [last] year,' said analyst Catherine Lim at Credit Suisse.

Olympic effect
Buoyed by the Beijing Olympics, Li Ning's net profit last year grew: 52.3%