Li-Ning’ H115 results throw some light upon troubled China’s retailers

Years of restructuring are finally paying off for Chinese sportswear maker Li Ning Co Ltd, as the second world’s largest economy’s retailer posted a narrower first-half loss and said it aims to return to profit by the end of 2015.

"The company will continuously improve its operating efficiency, step up its control over operating costs and strengthen cash flow management in a bid to drive its annual results for 2015 back to profitability," Li Ning, chairman of the company, said in a filling.

Li-Ning’s success lies on its strategy of resuming the openings of new sales outlets in lower-tier cities after years of restructuring.

Li-Ning reduces H1 loss and resumes new stores openings

In this vein, chairman advanced in a filing to the Hong Kong bourse that the company would expand its sales network mainly in southern China in the second half while maintaining reasonable inventories.

In fact, Li Ning has already begun expanding again, with net growth of stores in the first half for the first time since 2011, and 42 percent points of sale opened in the under-penetrated southern China region, highlights Reuters.

The net addition was of 119 outlets compared with the level at the end of last year, the company’s report said, which takes the company’s total store number to 5,745.

Nike’s local competitor in China reported a lower net loss of 29.4 million yuan in the first half of their fiscal year 2015, from a 585.8 million yuan loss a year earlier. Despite the improvement, this was its sixth consecutive six-month loss.

On the upside, Li-Ning enjoyed a 16 percent jump of its first-half revenue on a year-on-year basis, closing the period with 3.6 billion yuan. Its gross profit margin also rose to 44.9 percent from 44.6 percent.

Li-Ning recovery hints a potential improvement within the Chinese athletic apparel

On the wake of the news, Li-Ning shares advanced more than 9 percent to a 4.26 Hong Kong dollars close, its highest mark since June, 4 and outpacing a 0.6 percent rise in the benchmark Hang Seng Index that day.

Truth is that Li-Ning’s announcement offered some respite to the retail industry in China, where the economic slowdown has already left some ailing retailers behind – both national and foreign.

The last casualty of the current weaker economy in the Asia’s giant was Hong Hong-based fashion retailer I.T, which issued a profit warning earlier this month saying it had suffered a 60 million Hong Kong dollars currency loss that might have "a substantial negative impact" on its earnings between March and August.

On a related note, Peak Sport Products Co. (01968.HK) has also shown improvement in its financial performance for the first half of this year, bolstering hopes that the sports apparel industry is on the recovery track. Peak Sport’s interim profit surged 45.45 percent to 176 million yuan, the ‘Hong Kong Economic Journal’ noted.

The fall in the renminbi’s exchange rate will have only a marginal impact on Li Ning as its business is mostly in mainland China, chief financial officer Terence Cheung Wah-fung said.