Li & Fung Sees Difficult Year After Earnings Beat Estimates

  • Company sees little indication of economic, retail turnaround
  • Fast fashion, online retailers competition pressure margins

Li & Fung Ltd., which supplies clothing and toys to major retailers such as Wal-Mart Stores Inc. and Kohl’s Corp., expects this year to be challenging after it reported 2015 earnings that exceeded analysts’ expectations.

Net income fell 4.6 percent to $421 million in the 12 months ended December, beating an average estimate of $405.3 million from nine analysts compiled by Bloomberg. Sales decreased 2.4 percent to $18.8 billion, according to the Hong Kong-based sourcing company Thursday.

“We expect 2016 to be a challenging year given little indication of a turnaround of the global economy and retail sector in the near term,” the company said in a statement Thursday. “The retail landscape is likely to remain clouded by a promotional environment, geopolitical instability and unpredictable weather patterns.”

Li & Fung, which derives about 60 percent of revenue from the U.S., has been impacted by the slowdown in the country’s retail sales including for clothing and electronics, as American consumers preferred to retain their savings from cheaper fuel instead of splurging during the holiday season. The economic slowdown and political uncertainties in Europe and Asia also affected the company, it said.

Increased competition from fast fashion, off-price and e-commerce companies put pressure on margins at a time when retailers are already giving out discounts, Li & Fung said. Sales from the U.S. and Asia remained flat at $11.7 billion and $2.7 billion, respectively, while they dropped 11 percent to $3.1 billion in Europe.

Li & Fung has four “buy” ratings from analysts and five each for “hold” and “sell,” according to data complied by Bloomberg. Its stock fell 1 percent in Hong Kong trading before the results were announced, extending the decline so far this year to 9.3 percent. The city’s benchmark Hang Seng Index fell 6.4 percent so far this year.

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