Stella International is “cautiously optimistic” about order levels for the upcoming spring and summer 2021 seasons, although the Chinese shoe manufacturer still has low visibility for the second half of the year due to recent Covid-driven lockdowns in many countries around the world.
Steady volume growth and margin improvement will be its main priorities this year. It expects its product mix, which was more heavily weighted towards the Sports category during 2020, will start to normalize as the Fashion, Luxury and Casual categories rebound. One of the priorities this year will include expanding its manufacturing facility for sports shoes in Vietnam.
In 2020, the Chinese company’s revenues were affected by store closures and lower demand due to the Covid-19 pandemic. The top line fell by 26.5 percent to $1,135.8 million, including a 27.0 percent drop in manufacturing revenues to $1,117.1 million. The company shipped 43.4 million pairs, 26.9 percent below the level of 59.4 million in 2019, with the average selling price inching down by 0.4 percent to $25.70 per pair.
The company’s operating profit for the year declined to $2.1 million, which was well below the $105.5 million recorded in the previous year. The management blamed this on lower shipment volumes, operating deleverage and costs related to factory suspensions resulting from Covid-19. These were partially offset by Chinese government subsidies.
After a difficult first half, the situation gradually improved for the Chinese footwear company in the third and fourth quarters, as the business of Stella’s customers started to recover and as some sought to replenish their inventory levels after experiencing understocking ahead of the holiday season. Nevertheless, deliveries for the last three months of 2020 were down by 21.7 percent from the year-ago quarter to 10.8 million pairs, while total revenues plunged by 18.9 percent to $280.1 million, including those of its in-house brands.
Quarterly revenues from manufacturing fell by 18.8 percent year-on-year to $275.9 million due to lower demand amid the pandemic. The average selling price inched up to $25.60 from $24.70, driven by changes in the product mix and customer mix. Manufacturing operations were impacted by local shutdowns at the beginning of the year, which had some negative impact on production schedules and profitability.
Stella completed the integration of its handbag manufacturing business, which it said will facilitate lateral growth in the long term by capitalizing on synergies with its footwear customer base.
During the year, it implemented stringent cost reduction and control measures, conducted a credit risk re-assessment of all customers and adopted a cautious approach to cashflow management. As a result, net cash inflow increased to $47.3 million from $5.8 million in 2019. It had $108.7 million cash as of Dec. 31.