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Li Ning Says Margins May Narrow on Rising Costs, Competition

Li Ning Co., China’s largest maker and retailer of sportswear, said its gross and profit margins may narrow on rising costs and heightening competition.

The clothier founded former Olympic gymnast Li Ning yesterday said first-half net income plummeted 49 percent to 294 million yuan ($46 million) on sales that fell 4.8 percent to 4.3 billion yuan. Profit margin narrowed to 6.8 percent from 12.9 percent.

The gross margin for the second half of this year will be lower than in the same period in 2010 and the margin on profit attributable to equity holders for the full year of 2011 is expected to decline by about 1 to 2 percentage points, the company said.

“Rising costs have inflicted far-reaching impacts on the overall structure of the industry and have had a profound influence on different segments of the industry value chain,” Beijing-based Li Ning said in the statement. Competition continues to intensify, it said.

Li Ning fell 3 percent to HK$9 at the 4 p.m. close of trading in Hong Kong, before it announced earnings. The stock has tumbled 45 percent this year.

Escalating costs for raw materials, labor and rents, as well as higher discounts for distributors, cut Li Ning’s gross profit margin to 47.3 percent in the first half from 47.9 percent a year earlier, the company said. Operating profit decreased 46 percent to 442 million yuan from a year earlier.

The company said last month it expected first-half sales to drop about 5 percent and the margin on profit attributable to equity holders to shrink to as low as 6 percent on higher costs and increased competition.

Xtep International Holdings Ltd., a Chinese sportswear maker part-owned by the Carlyle Group, said last week its first-half net income climbed 25 percent to 466 million yuan.

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