Chinese sportswear and equipment maker Li Ning posted a drop in interim profit, as weak consumer sentiment weighed on spending and intensifying industry competition squeezed profitability, with management warning of “stronger-than-expected” challenges in the second half.
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Net profit for the six months to June fell 11 per cent to 1.74 billion yuan US$241.9 million from a year ago under global accounting standards, according to a statement late on Thursday. Sales rose 3 per cent to 14.82 billion yuan, while net profit margin dropped to 11.7 per cent, compared with 13.6 per cent last year.
“We have seen a slight improvement in daily traffic at our retail outlets, but offline challenges persist,” said CEO Qian Wei. He added that the company would navigate the challenging market environment cautiously in the second half to ensure earnings targets were met, while warning of “stronger-than-expected” challenges amid weaker consumer sentiment in the third quarter.
The Beijing-based company, founded by former champion gymnast Li Ning, generates nearly 70 per cent of its revenue from offline sales in mainland China, with around two-thirds coming from partnerships with distributors, according to its financial report.
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It closed 232 self-operated stores over the past year and opened 145 new stores in a bid to cut costs and improve operational efficiency. Qian said the effort to optimise offline presence through store closures would continue.
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Gross profit improved 2.5 per cent to 7.4 billion yuan, while gross profit margin declined by 0.4 percentage points to 50 per cent due to adjustments in channel structure and heavier discounts amid intensifying direct-to-consumer competition, according to the financial report.