Li Ning sees its losses widen in H1

Sportswear company Li-Ning displays its products at the 2013 China Sport Show held in Beijing. The company has been consolidating the distribution channel in the past two years, helping distributors transform with the company to the new business model and weeding out those who cannot embrace the change. Provided to China Daily

Leading sportswear company Li-Ning has seen a widening loss of 586 million yuan ($95.2 million) as a result of high inventory and bad debt despite the company's efforts to transform its supply chain and store network in the first half of 2014.

The company's revenue in the first six months was 3.13 billion yuan, a year-on-year increase of 8 percent, mainly due to higher sales of new products with the expanded self-owned retail network.

But its loss attributed to equity holders was increased from 184.2 million yuan last year to 585.8 million yuan.

"The significant decline of old inventory and growth generated by new products, especially those from our self-owned stores, shows that our new business model is working," Li Ning, founder and executive chairman of the sportswear company, said.

"However, we need more time to consolidate the improvement and expand gains in new product sales. It will take more time before we turn the balance sheet back to black."

"We will continue to focus on our five core categories: basketball, jogging, badminton, training and sports life, and concentrate all the resources and investments in these areas," Li said.

Earlier this year, Li-Ning, established by China's most famous gymnast, terminated its sponsorship of China's national gymnastics team.

"Personally, it was a tough decision for me to give up the sponsorship of the national gymnastics team, but I believe it's the reasonable and right decision for the company," said Li.

Jin-goon Kim, executive vice-chairman and interim CEO of the company, said: "We are on track in the transformation to a direct-retail and fast-fashion model, which no other Chinese competitors have tried. While old inventory, products older than two years, has been divested significantly, the management has been focused on sales of more profitable new products in the last six months."

The company has been consolidating the distribution channel in the past two years, helping distributors transform with the company to the new business model and weeding out those who cannot embrace the change.

The share of retail revenue contributed by their subsidiaries increased from 19 percent two years ago to 35 percent in the first half of this year. The company's number of stores decreased from 6,024 to 5,671 from the first half of 2013, said Kim.

The company opened more directly owned stores to replace nonperforming distributors in the first half. However, as new stores take six to 12 months to break even on average, the financial benefit has yet to appear.

Adam Zhang, founder of the Key-solution sports consultant company, said a loss for the second half of the year for Li-Ning is very likely as its transformation will take at least one or two years to accomplish.