Li Ning Loss Wider-Than-Estimated as Sales Fall Second Year
Li Ning Co. (2331), the largest China- based sportswear company by revenue, posted its first annual deficit since listing in 2004, as slowing economic growth caused sales to fall a second year. The shares fell.
The net loss was 1.98 billion yuan ($319 million) last year, compared with a profit of 385.8 million yuan in 2011, Li Ning said in a statement to the Hong Kong stock exchange today. That compares with the 1.4 billion yuan average loss of 10 analysts’ estimates compiled by Bloomberg.
The manufacturer and retailer said it hired executives from rival Nike Inc. (NKE), Dell Inc. (DELL) and Procter & Gamble Co. to help transition to a more “retail oriented” business model from wholesale, after saying on Jan. 25 it would raise as much as HK$1.87 billion ($241 million) in a sale of convertible securities to fund the effort. Slowing economic growth follows a surge of store openings for Li Ning, Nike and Adidas AG (ADS), leading the Chinese retailer to trim inventory after sales fell.
“Competition and inventory pose near-term challenges for the industry,” Executive Chairman Li Ning told reporters today in Hong Kong. The company will introduce new basketball products and focus on the sport to help revive profit, he said.
Li Ning fell 4.1 percent, its biggest decline since Feb. 5, to HK$4.46 as of the close in Hong Kong trading. The shares have slumped 12 percent this year, compared with a 1.5 percent drop in the benchmark Hang Seng Index.
Sales at the Beijing-based sportswear maker plummeted 25 percent to 6.74 billion yuan last year, it said.
Li Ning, which posted an 85 percent drop in profit in the first half of the year, had warned of a “substantial” loss in 2012 in a exchange filing on Dec. 17. The company founded by the Olympic gold medalist of the same name, announced plans last December to revive growth, while competitors including Nike have pared inventories and closed some stores.
Nike is the largest sportswear company in China with a 12 percent market share, according to data from Euromonitor International. Adidas has an 11 percent share, while Anta Sports Products Ltd. (2020) controls 5.8 percent and Li Ning 5.4 percent.
Li Ning has said it plans to spend on marketing, clear old inventory and take steps toward “improving product freshness.” The efforts, which will include buying back inventory, will cost between 1.4 billion yuan and 1.8 billion yuan, the retailer said in December.
Gymnast Li Ning was the final torchbearer at the opening ceremony of the 2008 Beijing Olympic Games. He won three gold, two silver and one bronze medals in the 23rd Los Angeles Olympic Games in 1984, and founded the company after retiring from athletics, according to the retailer’s annual report.
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