Chinese sportswear giant Li-Ning’s shares surge close to eight-year high as profit beats estimates

Shares of Chinese sports brand Li-Ning sailed close to an eight-year high on Friday after the company beat full-year earnings expectations.

The eponymous brand, founded by a former top Chinese Olympic gymnast in 1989, on Friday posted net profit of 715.26 million yuan (US$10.68 million) for 2018, up 39 per cent from the year before and beating the average estimate of 707.32 million by analysts polled by Bloomberg.

Revenue rose 18 per cent to 10.51 billion yuan, beating predictions of 10.32 billion yuan. The company recommended payment of a final dividend of 8.78 cents per ordinary share. It did not may a dividend last year.

Its share price shot up 11.4 per cent to HK$12.70 on Friday, its highest since June 2011.

The company attributed the gains to an improvement of operational efficiency and same-store sales achieving growth in the “low teens” as a percentage.

“We have enhanced the communication and interactive experience with customers through digitalisation whilst accurately capitalising on the hot topic to attract more young consumers and enhance the brand recognition,” it said in a filing to the Hong Kong stock exchange on Friday.

A boost in sales from e-commerce channels, cost-effective marketing and profits from categories including children’s wear helped to boost sales, as the company expanded, according to the filing.

Same-store sales lifted more than 8 per cent in the first nine months of last year, compared to declines a year earlier, and continued through December, according to Bloomberg Intelligence. Profits from kidswear products under the company’s LN Young label, in particular, helped to offset an increase in costs like wages and rents.

LN Young currently has 793 stores and the company wants to add 1,200 this year. “In the Chinese market, kidswear sees big room for development,” said chairman Li-Ning at a news conference on Friday.

Online sales registered growth in the mid-50s as a percentage year-on-year, according to the filing, compared to mid-single-digit growth in retail sales.

Li-Ning also cited “supportive government policies and steady improvement of the national economy” as factors.

Over the next year, the company will continue to use e-commerce to boost sales, improve data analysis, and focus on resonating with the youth, said Li Ning, under a “single brand, multi-category, diversified channels” strategy.

The brand said it is targeting the Chinese national badminton, ping pong and diving teams to partner with for the 2020 Olympics in Japan, and confirmed it is in talks with athletes.

In December, China’s State Council announced the competitive sports industry would reach 2 trillion yuan by 2025, in an effort to boost consumption as a driver for economic growth as health and wellness becomes a rising trend.

China, including Hong Kong, still remains by far and away Li-Ning’s key market, accounting for around 97 per cent of its sales last year. That is despite the company having opened its US headquarters and a flagship store in Portland, Oregon in 2010, as well as partnering with NBA basketball player Dwayne Wade in 2012.

Among its products, clothing accounted for around half of sales, followed by footwear which contributed around 44 per cent.

With a market cap of 21.13 billion, the company still has a much smaller presence than its leading domestic competitor, Anta, valued at 115.65 billion yuan.

Li-Ning’s share price rose by a third last year, and has gone up another 47.85 per cent so far in 2019.