【Domestic Information】 Analysis of Chinese Six Sports Brands’ Interim Reports

　　With the release of Li-Ning’ interim report, six sports brands including Anta, Xtep, 361°, Peak and China Dongxiang have all released interim reports by the end of August. Compared with the last year, five brands’ revenues and net profits decline except that Xtep’s slightly increases. For them, their focuses are still to reduce inventory. They do not achieve the goal of opening 10000 stores while they close some stores.

　　Revenues and Net Profits Both Declined

　　On August 6th, Anta first released its interim report, while its revenue decreased 11.6% to 3.934 billion RMB Yuan and net profit declined 17% to 0.77 billion RMB Yuan.

　　Following Anta, 361°, Peak and Xtep also released their interim reports which did not look optimistic.

　　361°’s revenue decreased 9.9% to 2.869 billion RMB Yuan and net profit declined 23% to 0.596 billion RMB Yuan; Peak’s revenue decreased 28.5% to 1.61 billion RMB Yuan and net profit declined 43.3% to 0.24 billion RMB Yuan; Xtep was better than them and its revenue slightly increased 1.4% and net profit slightly increased 0.3%; China Dongxiang’s revenue decreased 29.4% and net profit declined 56.9%.

　　On August 22nd, Li-Ning released its interim report. Its revenue decreased 9.5% to 3.88 billion RMB Yuan and net profit declined 84.9% to 44 million RMB Yuan in the first half of 2012.

　　It Is Difficult to Reduce Inventory

　　One insider jokes that the inventory would be enough to supply retailers in the next three years even if all Chinese apparel manufacturers shut down. For Chinese sports brands, their focuses are to reduce inventory in the next two or three years.

　　More seriously, their days of sales of inventory are increasing in the first half of 2012, for example, Peak’s days increase from 49 to 86 days compared with the same period in 2011. Li-Ning, Anta and Peak’s inventories respectively increase to 1.138 billion RMB Yuan, 628 million RMB Yuan and 529 million RMB Yuan while Xtep, 361° and China Dongxiang slightly decrease to 701 million RMB Yuan, 366 million RMB Yuan and 359 million RMB Yuan.

　　Since the beginning of 2011, Chinese brands’ inventories have attracted people’s attentions. The sharpest news report about this is that Chinese brands give up high end products to avoid competitions from Nike and Adidas and focus on middle class consumers. Unexpectedly, Nike and Adidas take the high end and lower end of the market.

　　Mr. XuZhihua, Peak CEO, says that the situation will not get better and Peak first must reduce inventory. Now, Peak’s supply discount for retailers is 61% off price which causes profits to decline. However, Peak is considering to increase discount and profits will further decline.

　　Mr. XuZhihua says that he pays much attention to the sales in the second half of the next year. If the sales increase, the sporting goods industry will get better. Now, Peak is considering selling inventory products overseas.

　　Xtep and Li-Ning are considering cutting orders. In the first order-placing meeting of 2013, Xtep’s sales order amount declines 15%-20%. At the same time, the supply discount for distributors is adjusted from 60% to 62%.

　　The Adjustment of Channels

　　According to their reports, Li-Ning, Anta, Xtep and Peak reduce their stores to about 7000 stores while 361° increases 185 stores to 8050 stores. China Dongxiang closes from 569 stores to 2550 stores.

　　Mr. Ye Shuangquan, an insider of the sporting goods industry, thinks that the development of brands must be led by market demands. In the situation of lacking consumption and oversupply, inventories and more stores become Chinese brands’ burden. The adjustment of channels will go on, and 6000-7000 stores are enough to cover 80% of the market.

　　In the first half of 2012, Li-Ning opens 248 stores and closes 1200 inefficient stores after the evaluation of stores’ operation. The number of Li-Ning’s common stores, flagship stores, factory stores and discount stores has been 7303 by the end of June, 952 less than the end of last year. Li-Ning also cuts down five distributors to 52 distributors.

　　In particular, Li-Ning’s inventory does not decrease and its days of sales of inventory are increasing from 72 to 95. However, its inventory amount only increases 6 million RMB Yuan more than 2011. Li-Ning’s management staff thinks that they plan to solve the inventory problem once and for all, so they adjust the profit plan. They may buy back products from distributors.

　　Li-Ning’s factory stores increase from 269 to 21 and its discount stores increase from 358 to 394. Li-Ning focuses on inventory and accounts receivable and offers terminal retailers 75% discount and clear goods channels up to 49% discount.

　　Other Chinese sports brands face the same problems. China Dongxiang has paid billions of RMB Yuan for buying back products and selling inventories, which causes its revenues and profits to decline greatly. Peak has strengthened distributing channels since last year and prepared for the future development of sporting goods industry. For example, Peak spreads its retailing network and closes inefficient stores. At the same time, Peak encourages retailers to open more shops in order to meet the market demands. Peak also increases the number of distributors in order to improve competitiveness.