Peak Sports to cull 800 stores amid slower sales

PUBLISHED : Wednesday, 14 March, 2012, 12:00am
UPDATED : Wednesday, 14 March, 2012, 12:00am


Sportswear and equipment retailer Peak Sports Products plans to cut about 800 mainland stores this year as it battles slowing sales growth, which has sliced its bottom line.

The company blamed a sluggish economy, rising costs and increased competition in sports shoes and clothing for a 5.4 per cent fall in net profit to 777.7 million yuan (HK$953 million) last year. Same-store sales growth for 7,806 outlets fell to 1.7 per cent in the fourth quarter of last year, from 12.7 per cent in the first quarter, it said.

Chief executive Xu Zhihua said the company would purge less profitable outlets to boost efficiency.

Despite the sector's recent slowdown, the company was still optimistic that long-term prospects were 'bright due to an acceleration of urbanisation and change in people's lifestyle', which had seen an increase in sporting activity.

Net operating cash flow last year plunged 73.4 per cent to 310.8 million yuan, and Xu said slower sales had led to increased inventory at distributors and retailers.

'Retailers have a backlog of around two months, and distributors have an accumulated backlog of between five and six months,' he said. 'We hope the stocks will be cleared before the end of this year.'

The company would not subsidise or buy back inventory from distributors, Xu said. As a result, Peak Sports expected distributors to place fewer orders this year, although the company said it would boost production capacity and lift research and development (R&D) spending this year by up to 50 per cent.

'Investment in R&D is in the company's long-term interests. We'll do that whether it's good times or bad times,' Peak Sports chief financial officer Denis Tsoi said.

The company would inject one billion yuan over the next four years to build a clothing plant in Heze, Shandong, and the 150 million yuan expansion of two factories in Fujian and Jiangxi would also be completed this year, it said.

Peak Sports issued a final dividend of 11 HK cents, giving a full-year payout ratio of 30.7 per cent of profits.