China Dongxiang, which trades mainly under the Kappa and Phenix brands, has reported a 19.5 percent increase in net profit to 1,459.8 million renmimbi (€157.3m-$213.7m) for the year ended last Dec. 31, giving it a huge net profit margin of 36.7 percent on its revenues, which grew by 19.5 percent as well, reaching 3,970 million RMB (€427.9m-$581.2m).
The Chinese company’s gross profit margin improved to 60.4 percent from 58.5 percent in the prior year, allowing the operating margin to grow to 42.7 percent from 40.1 percent. Excluding an exceptional gain of 146.0 million RMB (€15.7m-$21.3m) from the acquisition of a 91 percent stake in Phenix in April 2008, net profit increased by 6.7 percent. The company plans a dividend payout of 70 percent.
Margins improved following its termination of its international sourcing operations and of a contract with Rukka after the takeover of Phenix, due to the similarities among these businesses. The gross margin in China increased by 2.0 percentage points to 63.0 percent. The gross margin in Japan rose by 4.5 percentage points to 45.2 percent following the transfer of Phenix’ manufacturing activities from Japan to the group’s large production network in China.
China Dongxiang’s main business consists of products sold under the Kappa brand, for which it owns the rights in China, Macau and Japan. Last year, sales under the Kappa brand in China grew by 21.1 percent and represented 85.5 percent of the total turnover. The Japanese market represented 14.3 percent of the group’s sales, with Phenix generating sales of 375.4 million RMB (€40.4m-$54.9m), or 9.5 percent of the total turnover, and Kappa Japan another 4.8 percent.
Respectively, Kappa apparel and footwear made up 64.9 and 17.2 percent of total revenues. Volume sales increased by 29.2 percent to 16,117,000 units for apparel and by 4.4 percent to 3,614,000 pairs for shoes. The number of Kappa retail outlets directly or indirectly operated by the group’s 41 distributors in China grew from 2,808 to 3,511 in the course of last year. China Dongxiang formed joint ventures last year with six distributors, taking a stake of 30 percent in each, to better control and influence their operations.
The outlook is positive. Orders taken for the third quarter of this year are up by 22 percent from one year ago, thanks especially to the successful launch of a collection designed by Michael Michalsky, the former creative director of Adidas. The company raised its design and product development expenses to 2.3 percent of sales last year. It now has a design team of 61 people from China, Japan, South Korea and Italy.
