Li & Fung Profit Falls 14% as Economic Fears Hurt Retailersby
First half of 2016 ‘toughest’ period for company since 2008
Supplier says its customers more cautious in placing orders
Li & Fung Ltd., the world’s largest supplier of clothes and toys to retailers, reported a 14 percent fall in first-half core operating profit as concerns about the U.S. presidential election, Brexit impact and terrorism hurt sales.
Core operating profit dropped to $156 million for the six months ended June from a year earlier, the Hong Kong-based supplier to Wal-Mart Stores Inc. and Marks & Spencer Group Plc said. That compared with the 20 percent drop in the same period last year.
The first six months of 2016 “was the toughest retail and trading period we have operated in since the global financial crisis in 2008,” Li & Fung Chief Executive Officer Spencer Fung said in a statement Thursday. “Industry pressures, geopolitical uncertainties, US election concerns, a Brexit reality and the sad rise of terrorist activity has caused uncertainty in the market and affected consumer confidence.”
About 62 percent of Li & Fung’s 2015 sales were in the U.S., with another 16.5 percent from European countries. U.S. consumer confidence in August rose less than forecast as uncertainties over the outcome of the presidential election. Over in Europe, the rapid decline in the euro due to concerns of the impact brought on by Brexit also affected Li & Fung’s business.
Li & Fung shares have fallen 25 percent so far this year, compared with the Hang Seng Index’s 4.2 percent rise. It has also lagged the Bloomberg World Retail Index which gained 3.5 percent over the period.
The macro environment this year “has been one of the toughest we have ever seen,” Fung said in the statement. Customers “have therefore been increasingly cautious in placing new orders so as to reduce inventory level, which negatively impacted our top-line turnover,” he wrote.
The Hong Kong-based company reported adjusted net income fell 16.5 percent to $92 million, while sales dropped 6.4 percent to $8.1 billion.