Changing consumer tastes affecting Yue Yuen results

Hong Kong
Published:  26 March, 2019

Recurring profit for the Hong Kong headquartered footwear manufacturer declined -35% in 2018 to US$325.7 million, compared with US$500.8 million in the previous year.

Yue Yuen Industrial Holdings recorded revenue of US$9,695.3 million for the year ending December 31, 2018, up +6.3%, compared with the previous year. However, profit attributable to owners of the Company declined -40.9% to US$307.1 million, from US$519.2 million in 2017, leading basic earnings per share to decline -40.3%. The decline has been mainly attributed to operating deleverage within the manufacturing business, a reduction of the non-recurring gain for the year, as well as higher finance costs during the year. Recurring profit for the year declined -35% to US$325.7 million (2017: US$500.8 million). The Group recorded a non-recurring loss of US$18.5 million, including a loss of US$23.4 million on financial instruments. A year earlier, the Group had recorded a non-recurring profit of US$18.4 million.

Revenue attributed to the footwear manufacturing activity (including athletic shoes, casual/outdoor shoes and sports sandals) declined -1.5% to US$5,390.5 million, whereas the volume of shoes produced increased +0.4% to 326 million pairs. The average selling price decreased -2% to US$16.53 per pair year-on-year. Total revenue with respect to the manufacturing business (including footwear, soles, and components) totalled US$5,881.5 million in 2018, down -3.5% as compared with the previous year. Revenue attributable to Pou Sheng, the Group’s retail subsidiary, grew +23.3% to US$3,421.7 million, compared with US$2,775.4 million in 2017.

Yue Yuen says its manufacturing business continues “to face a number of uncertainties and challenges, including intense competition and changing consumer demand, particularly shortening lead-times and increased seasonality”, which are expected to continue to affect operating deleveraging and margins. It also faces additional risk arising from the U.S.- China trade frictions, which “could accelerate the pace of capacity migration” from the China to Southeast Asia. Further economic slowdowns or lower consumer spending could also affect the Group’s performance in 2019.

The footwear manufacturer said it is becoming more selective on the quality of orders rather than pure volume growth and that it will continue to enhance its “product and material development capability, to innovate on new products, and to explore other value-added and margin-accretive opportunities for vertical integration to tap new markets, creating long-term synergies for the Group”. Yue Yuen clients include Adidas and Nike.