Li Ning losses higher than expected

Chinese athletic company Li Ning announced its annual results for year that ended on 31st December 2012 on Tuesday. For the first time since 2004, the company reported a loss of almost 2 billion yuan (212 million pounds).

Revenue for the full year fell year-on-year by 24.5 percent to 6.739 billion yuan (716 million pounds) and gross profits declined by 36.9 percent to 2.549 billion yuan (271 million pounds). Earnings per share decreased by 612.1 percent to 187.96 cents.

The company named a “sell-in reduction, provisioning for accounts receivables and inventory, costs involved in executing the Transformation Plan, including the Channel Revival Plan, and other restructuring costs” for the decline in profits and an overall “unfavourable market environment and the challenges brought about by the current phase of the Group's development” as reasons for the Group’s financial performance.

Li Ning is expecting difficulties ahead

“China’s sporting goods industry is experiencing the worst industry down cycle that the sector has seen. Years of overexpansion caused the build-up of inventory . . . adversely affecting store productivity and profitability,” said the company in a statement. Li Ning had to close 1,821 stores and factory outlets last year, with 6,434 currently operating.

Li Ning profited from the support during and shortly after the 2008 Beijing Olympic Games but struggled with excess inventory in the years following. As a measure, the company offered deep discounts that damaged the brand’s reputation as a “cheap brand… having big sales” according to sportswear analyst Elyse Wang.

But analysts blame two additional strategies for Li Ning’s difficulties – trying to compete with foreign brands by positioning its products as upmarket and offering a product selection that is too wide. “They are trying to sell to everyone… They are trying to be a little bit of everything to everyone,” said Shaun Rein of China Market Research in Shanghai.

However, the company is content with the progress that has been made with the implementation of the transformation plan affecting all areas of the business. Looking ahead, Li Ning expects turbulent waters at least in the first half of 2013.“Market and industry conditions continue to be difficult, and the group’s financial performance is expected to remain challenging at least in the first half of 2013,” said company chairman and former Olympic gymnast Li Ning.

Images: Li Ning / Achim Hepp