Yue Yen Industrial Holdings was hard hit by China’s measures to contain the spread of coronavirus. The world’s largest shoe manufacturer posted a net loss of $136.7 million for the first half of 2020, against net income of $165.9 million for the year-ago period. The company managed to reduce operating expenses by more than 10 percent, but aside from lower sales and a reduced gross margin the company incurred extra charges of $84 million for severance costs related to closures and factory adjustments.
Total revenues dropped by 19.4 percent to $1,969 million, weighed down by lower Chinese retail sales and sluggish footwear demand due to lockdown restrictions, including many store closures.
The manufacturing segment saw revenues fall by 17.5 percent to $2,418 million, due to reduced and cancelled orders from customers as well as lower efficiencies and delayed shipments. The group’s factories in China closed in January when the outbreak started, and only reopened in February. Vietnam, Indonesia and China accounted for 43 percent, 42 percent and 11 percent of total shoe deliveries during the period.
The virus also adversely affected the supply chain, resulting in a shortage of certain raw materials. As a result, the gross margin in manufacturing narrowed by 4.3 percentage points to 13.8 percent. On the other hand, the average selling price increased by 4.6 percent to $17.25 per pair, which was primarily due to changes in the group’s product portfolio.
Athletic footwear sales inched down by 4.0 percent to $2,018 million, while sales of casual/outdoor plunged by 66.3 percent to $178.5 million and sports sandals dropped by 25.4 percent to $44.1 million. Sales of soles, components and others declined by 25.9 percent to $177.7 million.
Retail sales in China by the company’s Pou Sheng subsidiary tumbled by 15.3 percent to $1,667 million, hampered by store closures in February and March. The company focused on e-commerce, and launched its first WeChat stores in February, while adding content online to attract customers. At the end of the period, Pou Sheng had 5,597 directly operated stores and 3,839 stores operated by sub-distributors.
Looking at the rest of the year, Yue Yuen anticipates that the impact of Covid-19 on the group’s manufacturing business will diminish in the coming quarters. However, global demand for shoes is likely to remain subdued and may be further impacted by the recurring waves of infections that are forcing some economies back into lockdowns. It has witnessed signs of increased retail spending in some markets and believes that a recovery of the sporting goods market will be supported by the resumption of sports leagues such as the NBA and Premier League. Nevertheless, the company remains cautious and will continuously work to limit expenses.