The Paper's reporter Wang Qiwen
Li Ning's offline physical store. Visual China figure
Affected by the recurrence of the epidemic and the sharp rise in raw material costs, Li Ning said that "the operating environment was challenged to a certain extent during the period".
On the morning of August 12, Li Ning Co., Ltd. (02331. HK, Li Ning) disclosed its 2022 interim results. In the first half of this year, Li Ning recorded revenue of 12.409 billion yuan, an increase of 21.7% year-on-year (compared with the same period of the previous year), a new high in the same period in the past five years; Profit attributable to equity holders was RMB2,189 million, up 11.6% year-on-year, but net profit margin fell from 19.2% to 17.6% and gross margin decreased by 5.9 percentage points to 50%.
At the close of Hong Kong stocks on August 12, Li Ning rose 4.78% to close at HK$70.1, and the stock has fallen more than 17% this year.
In the first half of the year, revenue reached a record high of 12.4 billion yuan, an increase of more than 20% year-on-year
At the media conference on Li Ning's interim results held on the 12th, Zhao Dongsheng, the newly appointed vice president and chief financial officer of the group, said, "In the past six months, due to the impact of the epidemic, the entire consumer environment has been impacted and tested, and the sharp rise in superimposed costs and the high base impact of the same period last year have caused some pressure on the company's finances and operations. ”
From the perspective of revenue composition, footwear products are still the main force of Li Ning's income, in the first half of this year, Li Ning footwear products revenue of 6.759 billion yuan, an increase of 47.1% year-on-year, contributing 54.5% of the total revenue; Clothing revenue fell 3.1 percentage points year-on-year to MOP4.907 billion, while equipment and accessories revenue increased by 37.4% year-on-year to MOP743 million.
This financial report shows that Li Ning can achieve revenue growth of 20% in the first half of the year, behind which more retail discounts are allowed, the proportion of high gross profit channel revenue is greatly reduced, coupled with the rise in raw material costs and labor costs, making procurement costs rise significantly, channel inventory increase and a series of practical problems.
Li Ning's main operating and financial indicators in the first half of 2022 Source: Li NingZhong
Under the epidemic, Li Ning adopted more retail discounts to drive the growth of flow, and at the same time, in order to drive the recovery of flow after the relaxation of the epidemic, advertising and marketing expenses increased by 234 million yuan. Li Ning, executive chairman and co-ceo of Li Ning Group, also stressed at the meeting that the company continued to focus on the "single brand, multi-category, multi-channel" strategy, and continued to deepen the layout and investment of marketing resources in basketball, running, fitness, table tennis, badminton and other categories.
The effect of discounts and marketing is obvious. From the perspective of operating indicators, in the first half of this year, Li Ning's overall retail flow (including online and offline) resumed positive growth, with a high number of units (which can be understood as nearly 10%) year-on-year, and the offline retail flow of new products increased by about 15%.
According to the research report of China Merchants Securities International on June 22, the management of Li Ning Group revealed to the agency that due to the impact of the epidemic in April and the high base of the same period last year, the retail sales flow fell by more than 20% year-on-year, and the retail sales volume fell narrowly in May, but still had negative year-on-year growth.
According to the latest operating situation in the second quarter of 2022 disclosed in the financial report, based on the Li Ning sales points that have been put into operation since the same quarter of last year (excluding Li Ning YOUNG), in the second quarter of this year, the overall same-store sales fell by more than 10% year-on-year, and the retail turnover fell by nearly 10% year-on-year.
The revenue growth rate of direct operation and e-commerce channels has slowed down
Due to the increase in the discount of direct and e-commerce channels with higher gross profit margins, coupled with the increase in raw material costs and labor costs, the procurement cost has risen significantly, and the proportion of revenue from direct sales and e-commerce channels has declined, reducing the gross profit margin by 1.7 percentage points; the gross profit margin of wholesale channels has lowered the gross profit margin by 1.4%; An increase of approximately 45% in channel inventories led to an increase in inventory provisions. Under the influence of various factors, Li Ning's gross profit margin in the first half of this year fell from 55.9% to 50%.
At the same time, the financial report said that in order to support suppliers' more efficient capital turnover and production operations, the group shortened the payment cycle, so the net cash generated by operating activities was 1.583 billion yuan, down 52.4% year-on-year.
From the perspective of terminal performance, the revenue of direct operation and e-commerce business still grows, but the growth rate slows down significantly from the same period last year. According to the financial report, in the first half of this year, affected by the epidemic in some large cities, Li Ning's direct channel operation based on the layout of the city was "impacted", and the revenue increased by 10.8% year-on-year, accounting for 22.5% of the total revenue, while the growth rate of direct channel revenue in the same period last year reached 88.5% year-on-year, and the growth rate of direct sales revenue slowed down significantly.
Zhao Dongsheng said at the exchange meeting that the pressure of store closures in the first half of the year was concentrated in the second quarter, while the same-store sales on the whole platform increased by more than 80% in the same period last year, which also brought pressure to this year.
The epidemic in the first half of this year also "delayed" the rhythm of Li Ning's "opening big stores and closing small shops". Zhao Dongsheng introduced that in the first half of the year, the total number of channels was 7112, an increase of 367 over the same period last year, of which Li Ning's main brand store stores increased by 233, an increase of about 5% year-on-year, and the total sales area of stores and the average area of a single store increased by more than 20% year-on-year.
It is worth mentioning that in the first half of this year, Li Ning's revenue growth was mainly contributed by the growth of new stores and same-store sales, of which new stores contributed 195 million yuan. Qian Wei, co-chief executive of Li Ning Group, said at the meeting that the Group continues to adhere to the business strategy of commodities and store efficiency as the core, pays attention to the performance of single-store operation, and the monthly efficiency of newly opened stores is about 450,000 yuan, while the proportion of large stores with a store area of more than 300 square meters increased by nearly 10%.
Source: Li Ning 2022 Interim Results Media Conference
In terms of online channels, although Li Ning "actively developed the live broadcast sector business during the reporting period, while carrying out more efficient and accurate publicity and delivery", the revenue of e-commerce channels, which accounted for 28.5% of the total revenue, increased by 19.2% year-on-year, compared with 77.8% year-on-year in the same period last year. However, Qian Wei revealed at the meeting that in the first half of this year, the number of brand members exceeded 46 million, and the contribution of member sales increased by nearly 10%.
Franchise businesses (i.e., wholesale), which contributed nearly half of the revenue, increased revenue by 28.5% year-on-year in the first half of the year, not as fast as the year-on-year growth rate of 47.7% in the same period last year, but the proportion of total revenue increased by 2 percentage points to 47%.
Li Ning's revenue from various channels in the first half of this year Source: Li NingZhong
According to the financial report, due to the expansion of business scale, the company in order to seize the business scale sustained growth plan, according to the plan in advance layout, Zhao Dongsheng added at the meeting, under the epidemic, the group needs to ensure sufficient supply of new products to drive the recovery of business after the epidemic, while the first half of 2021 there is also a shortage of inventory, so the channel inventory in the first half of this year increased significantly by about 45%.
According to the financial report, the cost of inventory recognized as expense and included in the cost of sales was about 6.060 billion yuan, compared with 4.374 billion yuan in the same period last year. Specifically, in the first half of this year, the inventory of finished products accounted for the majority of the total was about 2.038 billion yuan, an increase of about 11% year-on-year, the inventory of work in process increased by nearly 55% to 27.1 million yuan, and the raw materials increased by about 8% year-on-year to 17.75 million yuan. Qian Wei said that the company's overall total inventory "remains in a very healthy state, with a library-to-sales ratio of only 3.6."
Despite this, Li Ning Group still maintains the full-year guidance at the beginning of the year, expecting annual revenue growth of 10%-20% to 20%-30% low, and the net profit margin remains at nearly 20%, but for the second half of 2022, "maintain a more prudent attitude, closely observe the channel recovery in the second half of the year, and make the best preparation for dealing with various sudden risks".
Responsible editor: Yes Dong Dong Photo editor: Shi Jiahui
Proofreader: Liu Wei