Last year’s acquisition of K-Swiss and its various footwear labels, including Palladium and Supra, helped Xtep International Holdings of China to show good revenues for the first half of this year. A smaller contribution came from the company’s new joint venture with Wolverine Worldwide, from the Merrell and Saucony brands. The total turnover of the group rose by 9.6 percent from the year-ago period to 3,679 million yuan renminbi (€450.6m-$539.0m). However, the core Xtep brand saw sales decline by 5 percent to RMB 3,201.0 million (€391.7m-$470.0m), accounting for 87.5 percent of revenues. One of the highlights was Xtep Kids, which recorded better-than-expected sales due to recent restructuring measures.
The Chinese sports group’s gross margin narrowed by 4.1 percentage points to 40.5 percent, while the operating margin declined by 7.8 percentage points to 13.6 percent. Net income tumbled by 46.5 percent to RMB 247.9 million (€30.4m-$35.0m), hampered by soaring general and administrative expenses linked to the K-Swiss and Palladium brands and the Wolverine joint venture.
Footwear revenues improved by 18 percent to RMB 2,253 million (€276.0m-$330.2m), lifted by acquisitions, but the cancellation of running events due to coronavirus weighed on the Xtep brand. The gross margin the footwear segment fell by 4.8 percentage points to 40.0 percent.
Apparel sales inched down by 1 percent to RMB 1,339 million (€164.0m-$196.2m), with the gross margin falling by 3.0 percentage points to 41.7 percent. Accessories sales were down by 3 percent to RMB 86.0 million (€10.5m-$12.6m), and their gross margin contracted by 4.0 percentage points to 33.9 percent.
The management said the operations of K-Swiss and Palladium were hit by the suspension of business since mid-March in the Americas and Europe due to the coronavirus pandemic. The two brands’ combined sales reached RMB 458.6 million (€56.1m-$67.2m). The new JV and distribution partnership with Wolverine generated RMB 19.5 million (€2.4m-$2.9m) in revenues, with an unspecified contribution from Tmall.
At the end of the quarter, there were 6,124 Xtep branded stores in operation, or 255 fewer than at the end of the year-ago period. K-Swiss had 42 stores, Palladium 31, Saucony 12 and Merell one. Another eight Saucony locations and several more Merrell units are due to open in the second half of the year.
E-commerce remained buoyant during the Covid-19 pandemic, representing 20 percent of the group’s total revenues for the period, but the proportion was not much different from the first six months of 2019.