Hong Kong company reporting season

Li Ning’s first-half profit rises 67pc to US$28.4m, beating forecasts

Sportswear company founded by China’s former Olympic gymnast aims to close more than 200 stores by the end of the year

PUBLISHED : Friday, 11 August, 2017, 6:14pm
UPDATED : Friday, 11 August, 2017, 10:22pm

Li Ning, the eponymous sportswear company founded by China’s former Olympic gymnast, has beaten analysts’ forecasts with a 66.8 per cent surge in its first-half net profit by shrinking its number of loss-making outlets. It aims to close more than 200 stores by the end of the year.

Net income rose to 189.2 million yuan (US$28.4 million), or 0.793 yuan per share, in the first six months, helped by an 11 per cent increase in sales to 3.996 billion yuan. The Beijing-based company didn’t declare an interim dividend.

The interim net profit beat analysts’ forecasts by 13 per cent, and is further evidence that Li Ning has managed to put its years of losses firmly behind it, helped by a turnaround programme where it slashed inventory, shuttered unprofitable sites and upgraded its factory outlets.

Gross profit margin improved one percentage point to 47.7 per cent during the period, the company said.

As at 30 June 2017, the number of stores under Li Ning brand has dropped 111 in number, to a total of 6,329 compared with last December.

Tsing Wah Fung, its chief financial officer, said: “The total number of stores will shrink. But we are really just swapping small stores [with large ones]. So if you look at the total square footage, it didn’t drop that much.”

Fung said by the end of the year, the net drop in the number of stores will be between 200 and 300.

Founded in 1989, Li Ning is China’s largest home-grown sportswear brand by sales. Starting initially with budget-conscious customers in its early years, the company expanded too quickly in its quest to snatch market share from Nike and Adidas.

The years after Beijing’s 2008 Olympics was a period of reckoning for Li Ning, as unsold inventory and unprofitable outlets weighed on its earnings.

Li Ning himself, the executive chairman of the company, said: “It will cost us money to revamp and upgrade our stores... but we are going to have to focus on integration.”

The company added 40 factory outlets to its network this year. Tsang said the total capital expenditure will be similar to last year, which will be no more than 350 million yuan.

The company’s shares fell 3.9 per cent, closing at HK$5.86 in Hong Kong.