Li & Fung Operating Profit Slumps 40% in 2012

Li & Fung Ltd. (494), the world’s largest supplier of clothes and toys to retailers, said operating income slumped 40 percent in 2012 as margins and orders weakened in its U.S. business.

The U.S. unit has recovered more slowly than expected, the Hong Kong-based company said in a statement to the stock exchange yesterday. It posted core operating profit of $882 million in 2011.

The supplier to Wal-Mart Stores Inc. (WMT) in August said sales growth in the U.S. trailed its expectations due to weaker consumer spending. The company has sought to boost sales by supplying global retailers with increasing amounts of Asia-made clothes, toys and furniture.

“The 2013 outlook will remain rather challenging for Li & Fung as the U.S. economy recovery is still quite slow,” said Steven Leung, institutional sales director at UOB Kay Hian Ltd.

U.S. retailers have relied on discounts to boost sales with unemployment close to 8 percent. In December, 4.8 million Americans were out of work for six months or more, according to the Labor Department.

The supplier got about 60 percent of its revenue from the U.S. in 2011, data compiled by Bloomberg show. Analysts on average forecast 2012 operating profit of $885 million for the company, according to sixteen estimates compiled by Bloomberg.

Global Supplier

Net income in 2012 is “unlikely to exceed” the previous year, Li & Fung said yesterday. It reported earnings of $681 million in 2011. This would be the first time since 2008 that Li & Fung’s annual profit hasn’t risen, according to data compiled by Bloomberg.

Dow Famulak replaced Richard Darling as president of the LF USA business effective Dec. 19, the supplier said.

Li & Fung, whose customers include U.S. retailer Kohl’s Corp. (KSS), in March raised HK$3.9 billion ($503 million) in its biggest share sale since listing in 1992.

The global outsourcer has relied on acquisitions to boost growth, spending about $3 billion on deals from 2006 to 2011, driving up both sales and profit in the five-year period, according to data compiled by Bloomberg.

The stock fell 1.7 percent to end at HK$13.88 yesterday, ahead of the earnings report. It declined 4.9 percent last year compared with a 23 percent gain for the Hang Seng index.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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