Li Ning feels the lethargy from China’s consumption slowdown as first-half profit slips 8%

Chinese sportswear giant Li Ning hopes to “ride the wave” of the Paris Olympics in an effort to attract more customers, after posting an 8 per cent profit decline amid an uncertain economic outlook.

The Beijing-headquartered company posted a profit of 1.95 billion yuan (US$217.7 million) for the six months ended June, according to a filing to the Hong Kong stock exchange on Friday. Revenue rose 2.3 per cent year on year to 14.3 billion yuan.

The country’s biggest sportswear manufacturer lowered its full-year guidance to revenue growth in the low single digits and low-double-digit profit growth.

“We expect the overall market environment to present significant challenges to the turnover at our offline stores, so our core objective this year is not growth in scale but to operate steadily and develop pragmatically,” said Qian Wei, co-CEO of Li Ning at a press conference.

“While the Olympics may not result in significant short-term business growth, it will increase consumer interest in sports and strengthen the perception of Li Ning as a professional brand,” said Qian. “I believe this represents a valuable opportunity and a crucial moment for brand development.”

While retail sales in China expanded by a better-than-expected 2.7 per cent in July, and consumer prices beat expectations to rise 0.5 per cent from a year ago, macroeconomic headwinds persist. Home prices fell for a 14th consecutive month in July and the unemployment rate continued to rise.

In the first half of this year, Li Ning opened 229 new stores, taking the total to 7,677. However, with declining consumer spending, the company’s offline turnover fell by “mid-single digits” from last year.

However, turnover from online sales grew, with their contribution to total revenue increasing by 3 percentage points to 30 per cent.

Despite a decrease of around 1 per cent in turnover across all retail channels, sales of footwear jumped 25 per cent and fitness products rose by 7 per cent.

“Moving forward, the group will continue to focus on functional technology as its core, creating high-quality fitness equipment for diverse sports scenarios,” said the eponymous Li Ning, who is also the executive chairman and former Olympic gold medallist.

“The group will continue to cultivate the sports market in China and ride the wave of the Olympics, upholding the spirit of ‘anything is possible’, to propel the Chinese sports industry onto the international stage.”

He added that the group will also strengthen its communication and connection with female consumers by launching products that combine functionality and fashion.

The company declared an interim dividend of 0.3775 yuan per share, including on shares issued upon conversion of convertible securities. This marked a 5-percentage-point year-on-year increase in dividend payout ratio to 50 per cent.

Li Ning’s shares rose as much as 8.9 per cent before ending the day 0.8 per cent lower at HK$13.10.