Chinese sportswear giant Li Ning falls 16%
Updated: 2010-12-21 07:02
By Li Tao(HK Edition)
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The Li-Ning brand logo is displayed outside one of the company's stores in Beijing. The company's share closed down 15.95 percent Monday at HK$17.86 on news that its orders for the second quarter of 2011 were down. Bernardo De Niz / Bloomberg |
Chinese sportswear maker Li Ning Co plunged almost 16 percent in Hong Kong trading Monday - its biggest-ever drop - after announcing that its orders have slowed and its costs are rising.
Li Ning's closed down 15.95 percent at HK$17.86 from HK$21.25.
Li Ning said on its website Friday evening that its year-on-year orders for apparel products and footwear for the second quarter of 2011 were down 7 percent and 8 percent respectively.
Zhang Zhiyong, the company's chief executive officer, said that Li Ning's growth model has been heavily reliant on store openings by its subdistributors. And given that operating costs at the retail level are escalating rapidly, this model is no longer sustainable and the company has set conservative growth targets for next year, he added.
"We are of the view that the retail environment for the sporting goods industry next year will face heavy pressure," said Zhang.
Total order value for the second quarter next year is flat compared with the same period last year after it lifted its average retail prices for footwear and apparel by more than 8 percent, the company said.
"Taking into account the impact of a 3 percent higher wholesale discount (to the distributors), total order value in sell-in terms declined by 6 percent compared to the same period last year - its first volume decline since 2008," Joyce Jia, an analyst with SWS Research wrote in a report released Monday.
Meanwhile, Li Ning's mainland competitors listed in the city earlier reported healthy growth in their orders for the second quarters of 2011.
Anta Sports Products Co announced a 21 percent year-on-year increase in orders while Xtep International Holdings Ltd and Peak Sport Products Co saw rises of 25 percent and 24 percent, respectively.
Competition for Li Ning in 2011 will become even tougher in the mid-range sportswear market, as Li Ning faces competition from both domestic and international brands, said Jia. She added that after a two-year consolidation of their retail channels, Nike and Adidas are now back on the scene and intend to expand their mainland market presence next year.
"On one hand Li Ning is offering more discounts to its wholesale distributors, but on the other hand more of them are losing confidence in the company," Core Pacific-Yamaichi analyst Bill Chen told China Daily.
"Li Ning positions itself as a mid-to-high end sportswear maker, but it has lost the second and third-tier markets to Anta and Xtep because of its high prices, and the high-end consumers because of popularity."
Chen said he doesn't expect any miracles from Li Ning in the near term as the company continues to lose market share.
Its order value for the first quarter of 2011 was also low compared with other players, which increased 12 percent year-on-year while Anta's rose 21 percent and Xtep's climbed 23 percent.
Li Ning has lost more than 39 percent of its share price value this year compared with its closing price of HK$29.5 on December 31, 2009.
China Daily
(HK Edition 12/21/2010 page3)