Li Ning to annonce a loss for 2012

By

Bruno Joly

Published
Dec 18, 2012

In June, Li Ning issued a profit warning but failed to mention that they were verging on the red. The Chinese sportswear giant followed this up by announcing yesterday that the company will be recording a loss for 2012. What is more concerning is that the announcement is based on 11 month’s unaudited results. The company first half saw operational profit plummet 58% to 184 million yuans.

The contributing factors are evident: increased competition in the domestic market – which represents 90% of the brand’s activity – and the professionalization of franchises. Li-Ning management has created a “Channel Revival Plan” to address issues. The plan, which is expected to cost between 1.4 and 1.8 billion yuans, equivalent to 170 and 220 million euros to implement, consists mainly of focusing on the company’s stock issues. Initiatives include reducing old inventory, improving product freshness and optimizing merchandising, coupled with network rationalization. "The wholesale business practice that had allowed Li Ning to quickly capture market share in the Chinese sportswear industry through aggressive network expansion was no longer able to respond quickly to the dramatic slowdown and saturation of the industry in the past few years,” says Jin-Goon Kim Executive Vice Chairman of the Group.

From January to June, the group’s turnover declined by 10% to reeach 3.8 billion yuans (486 million euros). 85% of this figure was due to Li Ning. The brand itself saw a 12% decline in turnover and Lotto saw 5%. Table-tennis brand Double Happiness grew, however, by almost 18% while the distribution agreement with Aigle grew by 48%.