Li Ning Company Ltd

Sportswear firm Li-Ning sees first-half loss soar 218pc

Interim chief executive sees challenges ahead as sportswear firm's first-half loss soars by 218.5pc

PUBLISHED : Thursday, 14 August, 2014, 10:07am
UPDATED : Friday, 15 August, 2014, 12:40am

The mainland's second-largest sportswear brand, Li-Ning, saw its first-half loss soar 218.5 per cent year on year to 586 million yuan (HK$737.5 million) - versus a loss of 184 million yuan a year ago - and admits that a painstaking turnaround initiated two years ago will take much longer than expected to implement.

"I think that there are a few things that were more difficult than I first imagined two years ago," interim chief executive Jin-Goon Kim said. "The biggest one is there were some weak channel partners that were more challenging to turn around. This is a very hard thing to control."

Shares of Li-Ning dropped 4.99 per cent yesterday to close at HK$4.76. In contrast, the Hang Seng Index eased 0.36 per cent.

The brand founded by Olympic gymnast Li Ning, who won three gold medals in the 1984 Los Angeles games, has been working on a transformation from a wholesale model to a direct retail one and redesigning its products after suffering from overexpansion and poor brand differentiation.

An MB BrandZ study last year found that Li-Ning was the most recognised sports label on the mainland after foreign brands Nike and Adidas.

"First in the clearance stage you're focusing on cash flow, not profit," Kim said. "Then in the second stage, because you brought down the size of the business, your scale is not big enough for your fixed costs so you have to ramp back up to cover the costs.

"We are now on the path of ramping back up and because that ramp up is quite steep, exactly how it will turn out financially is not something that we are ready to discuss as a specific timeline."

Revenue was 3.13 billion yuan, up 8 per cent year on year. Although the company achieved its planned sell-through momentum on new products, expenses from consolidation of its store network and supply chain, along with overall distribution costs ate up 43.7 per cent of the group's total revenue.

"The loss was primarily due to the investment in retail and marketing, which obviously will contribute to the business in time," Kim said.

Staff costs and store rental expenses rose significantly, mainly due to the increasing number of retail stores and staff on the payroll, while the firm's advertising and marketing expenses remained stable.

The company put aside 683 million yuan as a provision for bad debts. At the end of June, the company had 1.01 billion yuan in receivables past due, with 663 million of that past due for more than six months. Customers are normally granted credit terms of 90 days.

In contrast, rival sportswear brands Anta and Peak Sports both reported high double-digit increases in profit.

Earlier this month, it was announced that Li-Ning had lost out to Anta in securing a sponsorship deal with the Chinese gymnastics team.