A shopper browses shoes inside a Li-Ning store. The brand's fourth quarter same-store sales growth is less than 4 percent, lagging far behind its rivals. Bernardo De Niz / Bloomberg

Shares down 7.49 percent to HK$15.80

Hong Kong-listed Li Ning Co, the leading sportswear maker on the mainland, was sold down Monday, with the share price plunging 8 percent, after the company announced disappointing same-store sales growth for the fourth quarter and projected higher advertising expenditure for 2011.

Same-store sales of its branded products grew 3.6 percent in the fourth quarter and 3.9 percent for full-year 2010 compared with a year earlier, the company wrote in a statement to the Hong Kong stock exchange Monday.

The announcement is in contrast to one of its rivals, Hong Kong-listed sportswear maker 361 Degrees International Ltd which said Monday it recorded 15 percent same-store sales growth in the fourth quarter to December 31, 2010.

Shares of Li Ning dropped HK$1.28 or 7.49 percent to close at HK$15.80 Monday, compared with the 0.52 percent loss on the city's benchmark Hang Seng Index.

The stock slumped HK$13 or 44.1 percent in Hong Kong trading in 2010. It has decreased a further HK$0.76 or 4.6 percent this year.

Also on Monday, Li Ning held discussions with analysts and investors in Hong Kong to unveil its future prospects and strategies for the year.

The company said it will increase spending on advertising and promotional expenses, lifting last year's 15 percent spending as a percentage of revenue to 17 percent in 2011.

Li Ning said it will also increase spending on human resources, and expects its new wholesale discount policy and escalating production costs will result in a 1 percentage point decline in its gross profit margin this year as compared with previous years.

Forrest Chan, an analyst at CCB International (CCBI), said Li Ning's moves will just put more pressure on its already thin profit margins.

"The market is quite aware of the difficulties Li Ning is now encountering, but the latest plans are discouraging," said Chan. He added that CCBI would downgrade the stock.

The gross profit and net profit margins for 2010 were broadly in line with levels achieved in 2009, Li Ning said in the statement, adding that new store openings fell short of the target set at the beginning of last year.

The company currently runs more than 7,900 of its brand stores on the mainland as of the end of 2010. For the six months ended June 30, 2010, the company's gross and net profit margin stood at 47.9 percent and 12.9 percent, respectively. This compares with 47.8 percent and 11.7 percent during the same period in 2009.

On December 20, 2010, Li Ning Co recorded its biggest-ever drop - sinking almost 16 percent in Hong Kong trading after it announced its year-on-year orders for apparel products and footwear for the second quarter of 2011 were down 7 percent and 8 percent respectively. It was the worst amongst Hong Kong-listed mainland sportswear firms, which all recorded growth of 20 percent or more.

"The cheap will get cheaper," a report released by CCBI on December 20 said. "The company claims it is making use of 2011 to improve its distribution platform, primarily to cope with the rising retail costs and to increase retail efficiency. As a result, the third and fourth quarters' wholesale order value growth in 2011 is likely to remain weak," it added.

China Daily

(HK Edition 01/18/2011 page3)