Li Ning grew profit, but its own guidance is starting to look shaky

Back in April, when Li Ning reported its first quarter, it kept its full year targets on the board: high single digit revenue growth and a high single digit net profit margin. Two percent growth doesn’t get you to high single digits, and this filing doesn’t say a word about whether that target still stands. That silence is itself a data point. Getting there now would take a real second half surge, and nothing in Thursday’s release points to one.

Where the profit gain actually came from

Here’s the part that matters more than the headline number. Net profit rose 4.5 percent to RMB1.82 billion (€233 million). EBITDA, which strips out noncash charges, fell 4.1 percent. The profit line got help from somewhere other than the shop floor: a lighter tax bill, mostly. The effective tax rate dropped to 25.8 percent from 33.3 percent, largely because last year’s period carried a one off RMB115 million (€15 million) withholding tax on dividends from mainland units that simply didn’t repeat this time. Cash tells a rougher story still. Operating cash flow fell 60.4 percent to RMB954 million (€122 million).

A wholesale problem?

An unaudited operational update Li Ning filed with the Hong Kong Stock Exchange, which SGIE covered on Aug. 10, showed China retail sell-through turning negative again in the second quarter. Franchised distributors saw the steepest decline, a mid-single-digit drop. Directly operated stores fell less, in the low single digits. Only e-commerce grew. Yet revenue in this filing still rose 2.8 percent.

Something doesn’t add up: either sell-through recovered fast after that update, or distributors are stocking more than they’re selling.

By category, apparel had a strong half, up 11.8 percent. Footwear, still more than half of everything Li Ning sells, grew a mere 0.6 percent. Equipment and accessories dropped 17.7 percent. Gross margin did improve, up 0.9 points to 50.9 percent, continuing a recovery from the 49.0 percent margin the company posted for all of 2025.

The marketing bill keeps rising as store counts keep shrinking

Selling and distribution costs rose 8.1 percent and now eat up 30.5 percent of revenue, versus 29.0 percent a year ago. Some of that is easy to explain: the Winter Olympics and national team sponsorships. Some of it is new: Li Ning confirmed a reported $400 million, 10 year partnership with Stephen Curry’s Curry Brand in June.

The retail network shrank to 7,579 points of sale, 30 fewer than at the start of the year, as directly operated stores fell 5.3 percent even while the franchise network added 0.8 percent, the same shift toward third party operators SGIE tracked in that Aug. 10 coverage.

A dividend, and a lawsuit that isn’t going awaa

The board declared an interim dividend of RMB35.12 cents per share (€0.045), up from RMB33.59 cents (€0.043), worth roughly RMB908 million (€117 million). It’s payable September 16 to shareholders on record as of September 8. Meanwhile, a Hong Kong subsidiary, Li Ning Communications, is still fighting a writ of summons from the liquidators of Vast Gold Holdings and Active Legend over a disputed HK$1.96 billion (€214 million) loan. A case management conference is set for September 3. The company says it owes nothing.