Shares in Chinese sportswear maker Li Ning dropped by the most in a year as it reported weaker-than-expected earnings for 2022, citing Covid-19 challenges that led to discounts and ballooning inventory. Li Ning ’s net profit increased 1.3 per cent year on year to 4.06 billion yuan (US$590 million) for the year ended December 31, below the 4.17 billion yuan the market expected. Revenue increased 14.3 per cent to 25.8 billion yuan, while gross profit margin fell 4.6 percentage points to 48.4 per cent, the company said during a results briefing, blaming cost inflation caused by higher inventory and retail discounts. Li Ning’s shares slumped 10 per cent to HK$57.70 in Hong Kong on Friday, the biggest setback since an 11 per cent decline on March 14 last year, according to Bloomberg data. Inventory surged by the most in five years, expanding 37 per cent year on year to 2.55 billion yuan, calculated at cost before provision, the company said. The high inventory was partly due to logistics problems during the Covid-19 pandemic, said Qian Wei, executive director and co-CEO. “Sometimes we need to stock a lot of products to prevent [problems from] the uncertain logistics capabilities during the pandemic, thus there might be a high inventory in the short term,” he said. “But actually our inventory ageing structure remained reasonable and controllable.” Looking ahead, the company said it expects positive performance this year with a rebound in the mainland China sportswear market and aims to expand its Hong Kong market. ‘It hurts our feelings’: why Chinese sportswear giant Li-Ning is under fire “With the optimisation of pandemic prevention and control measures by the Chinese government, the domestic consumption demand gradually rebounded as a whole,” Li Ning, the company’s founder, executive chairman and joint CEO, a gold-medal Olympic gymnast, said during the briefing. “Furthermore, a huge market vitality has been unleashed, which is conducive to promoting sports consumption.” The company last December opened its first shop in Hong Kong’s Tsim Sha Tsui district, viewed among market watchers as an attempt to expand its overseas market and absorb foreign capital amid weakened growth in the mainland market. The company expects to open “the second, the third, and more” stores in Hong Kong this year, said Qian, who is also known as Kosaka Takeshi. “As we will focus on the Chinese market before 2025 and expand our overseas market in the future, Hong Kong is a key [launchpad] for us to retain talents in international communications and operations, and explore the overseas market,” he said. The company endured a public outcry in 2022 when some consumers demanded a boycott after Li-Ning launched a clothing line with a design that was said to resemble Japanese military uniforms.