【Industry Trends】The Thoughts on Annual Reports of Sporting Goods Industry

　　6 sports brands including Li-Ning had published 2011 financial reports by March 30th, which reflected trends and problems of Chinese sporting goods industry. It was reported that, stock, price of raw material and work force cost had impacted development of these companies, Chinese sporting goods industry which had been growing fast for nearly 10 years entered into a bottleneck period.

　　In fact, international brands also had problem influenced by European financial storm and decelerating Chinese economic growth. Raw material cost increasing plus delivery and channel like rent going up with marketing cost growing caused by media, Nike and adidas were both impacted. Though good results in two companies’ quarterly financial reports, they had been ready to drop in Chinese market. Adidas estimated that the income of this year would just increase by 5%-9% in Chinese market.

　　On March 22nd, Nike launched quarterly financial report which showed profitable result, but share price decreased by 3.22% on 23rd, for implication of “rate of margin going down” in financial report. Analyst said, report described that growing salary in China and other areas cut down profit. High labor cost would be a problem domestic and foreign companies would be facing for a long time, and also the competition among them.

　　There were 3 companies’ net profit dropping, 2 companies’ turnover decreasing, and 1 company developing slowly, among Li-Ning, Anta, Peak, China Dongxiang, 360 degree and Xtep. Some companies used to increase turnover by opening more stores had begun to reduce the number of stores or control the speed of opening new stores to get more profit. XXX Olympic Games would be held in London this year, many brands wanted to make full use of this opportunity. However, insider considered that Chinese companies would not achieve big success as they did in 2008 because London was the host.

　　Under the tough competition and rigorous situation, Li-Ning had been ready to face challenge in advance. Li-Ning promoted business transformation further in 2011 through perfecting business mode with “brand-oriented”, buying back stock with 0.31 billion yuan, improving operation efficiency. In 2011, Li-Ning’s revenue was 8.929 billion yuan, with gross margin 4.114 billion yuan and net profit 0.386 billion yuan.

　　Though Li-Ning’s result in 2011 was not as good as in 2010, it was successful to gain gross margin 4.114 billion yuan during industry transition and Li-Ning’s transformation period. Revenue decrease was smaller than company leadership’s forecast in early 2012, which showed that Li-Ning understood its own situation and was an honest and responsible company.

　　The biggest worry in investment community was ambiguous future, but investment community was happy to see result better than forecast, which could be seen from share price of Li-Ning and reflected that investors and investment bank believed in honest Li-Ning. For example, when Li-Ning released financial report on March 30th, its share price was 8.26 HKD in Hong Kong Exchange, which was higher than 6.13 HKD in the beginning of year, increasing 34.7%.

　　In addition, CICC, Piper Jaffray and DBS Vickers Securities as well as other investment banks expressed after Li-Ning financial report releasing, Li-Ning’ performance was in line with expectation or something about and they recognized its performance. Goldman Sachs, famous investment bank, indicated that Li-Ning would be the first recovered sports brand because it was the first Chinese sporting goods company to clear its inventory.

　　DBS Vickers Securities described in its report, 2011 Li-Ning financial report met expectation and performance indication of company leadership, adjustment was undergoing and the worst period had gone. However, the stock rating was still “hold” to wait for more signs of recovery.

　　BofA-Merrill said before Li-Ning’s report, Li-Ning had finished half of clearing inventory, but other companies were still in the early stage. Because of lower cardinality，the pressure of margin rate was not big. This investment bank had increased revenue prediction by 6% in 2013, and share price from 7.7 to 8.8 yuan with “medium” rate.

　　Before report released, no clear understanding to development strategy caused inaccurate opinions based on predicted data published by Li-Ning in the beginning of year. In fact, Li-Ning’ report met expectation in early this year, moreover, Li-Ning announced 2012 focuses and long-term development strategy in report launch event.

　　Li-Ning, establisher and president of BOD, said that “global economy recovery was facing challenge in 2012, but Li-Ning would benefit from the background of China economy’s turning from investment-driven to consumption-driven. Drove by London 2012, Chinese sporting goods industry would keep growing smoothly in my prediction. Li-Ning group held a cautious attitude to China macroscopic economy and adjustment of sporting goods industry. Li-Ning group would dedicate to enhance operation efficiency and effect of strategy implement to set a good foundation for long-term target.”

　　Li-Ning group expressed that it would continue to execute transformation measures, and put focus on the following items:

　　At first, group would pay attention to core business further, improve operation efficiency, reform organization, readjust the product mix, increase rate of margin, and enhance expenditure management.

　　Li-Ning would reform channels further and improve retail efficiency in the second to forth line market.

　　Li-Ning would optimize brand strategy and its management system; combined with brand positioning, it would make use of sports marketing recourse to improve use efficiency of brand marketing and connect closely with consumers.

　　Li-Ning increased its sponsored teams home and aboard through London 2012; improved product design and research, and highlighted product technology, providing series met common customers and professional fans.

　　Moreover, Li-Ning would accelerate establishment of clear inventory channel and achieve reasonable store construction by the end of 2012; promote the 6th generation store to display brand’s character through store image and retail experience, and set up brand image store and brand flagship stores in province and county level to promote brand position and market share.

　　We could find out very specific and distinct target of Li-Ning in 2012 from above. An analyst said, as leading company, Li-Ning took active measure to increase opportunity of improving revenue rate, and it would achieve long-term target.