Li Ning was forced to cut 15% of stores, start personnel adjustment

Today, it is reported that in the first half of this year, Li Ning opened 248 new stores, assessed the profitability of the stores, and made structural adjustments to close 1,200 inefficient stores. The ratio of this store is as high as 15%. As of June 30, the number of Li-Ning regular stores, flagship stores, factory stores, and discount stores was 7,303, a net decrease of 952 compared with the end of last year; dealers cut 52 and 52.

On August 23, Li Ning (HK.2331) announced its interim results. Its operating income for the first half of the year decreased by 9.5% year-on-year to 3.88 billion yuan, while net profit attributable to shareholders of listed companies fell by 85 percent to only 0.44 billion yuan. . In order to save costs, Li Ning shut down 1200 stores in the first half of this year and is expected to continue closing stores in the second half of the year. At the same time, the company issued a performance warning, saying that the full-year earnings may "see red."

Earlier this year, TPG, a US private equity fund, became a shareholder of Li Ning. After the chief executive Zhang Zhiyong left office in July, Jin Zhenjun, a partner of TPG, was appointed as Executive Director and Executive Vice Chairman of Li Ning and Li Ning joined hands to reform. "This is a strategic adjustment," Jin Zhenjun revealed at the earnings conference. According to Jin, Li Ning is planning to solve the inventory problem once and for all.

Loss is expected to reach 226 million in the year

The Li-Ning announcement disclosed that from January to June this year, the company’s core brand Li Ning and its agent’s Lotto sales revenue both declined. Among them, Lotto's operating profit continued to lose to 100 million yuan, and the other operating profits such as AIGLE, Kason, and Z-DO, together had a total loss of 89.81 million yuan. Due to the increase in discount rate of retail terminals and the clean-up of used products, the overall gross profit of Li Ning in the first half of the year decreased from 47.3% in the previous year to 44.2%, while staff cost expenditure rose from 8.7% to 9.6%.

In the first half of this year, Li Ning opened 248 new stores, assessed the profitability of the stores, and made structural adjustments to close 1,200 inefficient stores. The ratio of this store is as high as 15%. As of June 30, the number of Li-Ning regular stores, flagship stores, factory stores, and discount stores was 7,303, a net decrease of 952 compared with the end of last year; dealers cut 52 and 52.

In the future, Li Ning will continue to shut down inefficient stores. According to Jin Zhenjun, the number of stores closed in the second half of the year is less than in the first half of the year. However, Li Ning's profitability is reduced. The Bank of America Merrill Lynch expects that the company's annual loss will be around 226 million yuan.

Internal senior management team personnel adjustment

It is worth noting that Li Ning’s stock situation in the first half of the year has not improved and its average inventory turnover period has increased from 72 days to 95 days. "Because the beginning of the year is too optimistic about the future of the Group and the industry, and for inventory that has been accumulated for several years, there is a lack of efforts to clear inventory in the first half of the year. The company plans to solve the problem once and for all, so the annual profit forecast is adjusted." Jin Zhenjun said that this is Strategic adjustment. At present, the management is discussing whether it will repurchase products to dealers and has not yet finalized the case.

As of the end of June, in Li Ning’s clearance channel, factory outlets and discount stores increased from 269 and 358 to 271 and 394 respectively. The company’s executive director and chief financial officer stated that the company’s future focus will continue to address inventory and accounts receivable issues, providing a 7.5 percent discount for end retailers and a 4.9 percent discount for clearing channels. In 2013, the guideline for distributors was to reduce the wholesale discount rate, and the overall discount rate was expected to be less than 1 percentage point. The Bank of America Merrill Lynch expects Li Ning's business to turn for the better in 2014, but before that, the company's sales and gross profit will continue to be under pressure. Under the challenging environment, the progress of the reform is uncertain.

In July of this year, the original chief executive officer of Li Ning Chongchen left the post. It is reported that the post of chief executive officer is still suspended. Li Ning stated at the interim results announcement that he has looked for a headhunting company to look for candidates and hopes to find a competent person. Jin Zhenjun added that at present, he is not in a hurry to hire a chief executive, because he is currently working with Li Ning to promote corporate reforms. The two sides have cooperated smoothly and can spend more time finding the best talents.

It is reported that in the future, the Li Ning team's executive list, there will be a senior manager responsible for the supply chain and procurement, is coming from a high-tech company, he will bring Li Ning supply chain management experience. There will also be a new chief sales officer and chief product officer, both of whom are passing files from top sports brand companies. In addition, there will be a world-class designer to join.

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