The Hong-Kong-based footwear manufacturer and retailer Stella International expects its new factory in Solo, Indonesia, to come on stream in the third quarter of 2021 as the company continues to increase production outside the Chinese mainland. The plant is expected to contribute to overall sales in 2022.
Solo will be Stella’s second plant in Indonesia, besides the one located in Surabaya. The company has production facilities in Bangladesh, Vietnam and the Philippines. For the whole of 2021, it expects 69 percent of its manufacturing to be achieved outside of China, while 19 percent will be carried out in its Chinese sites of Guangxi, Hebei and Hunan, situated inland, and 12 percent in Guangdong, on the country’s coastal area. The company also has commercial operations at Dongguan.
In the first half of 2019, foreign sites only represented 55 percent of Stella’s production against 33 percent for the facilities in inland China and 12 percent for Guangdong.
While Stella increased the share of production outside China, sales generated by its facilities the Chinese mainland and Hong Kong represented 20.5 percent of total revenues in the first half, against 15.3 percent a year earlier. The importance of all other regions diminished with North America falling to 49.5 percent of group sales from 50.8 percent, Europe slipping to 21.3 percent from 24.4 percent, the rest of Asia dropping to 6.5 percent from 7.2 percent and the rest of the world to 2.2 percent from 2.3 percent.
First-half revenues increased by 36.0 percent to US$695.5 million from $511.5 million in the same period last year. The difference was mainly due to a low base in the first six months of 2020, when the company was severely impacted by the Covid-19 pandemic.
Stella’s revenues deriving solely from manufacturing were driven by all footwear categories, but with very different growth rates. Revenues from luxury shoes doubled, those from casual shoes increased by 51 percent, followed by 28 percent growth for sports shoes and 6 percent for fashion.
The share of sports shoes in total manufacturing revenues narrowed to 42.1 percent from 44.6 percent a year earlier, casual widened to 33.6 percent from 30.1 percent, fashion fell to 14.7 percent from 18.8 percent and luxury grew to 9.6 percent from 6.5 percent.
Stella returned to profitability during the six-month period thanks to increased order volumes to meet pent-up consumer demand as well as an improved customer and product mix. The gross profit surged by 64.1 percent to $139.0 million, while the operating profit was a positive $36.3 million, compared to a loss of $3.4 million a year earlier. The bottom line showed a net profit of $32.2 million against a loss of $5.2 million.
On an adjusted basis, which includes $4.8 million in severance payments in the first half of 2021, the operating profit rose by 277.1 percent to $41.1 million and the net profit grew by 306.6 percent to $37.0 million.
Stella improved its net cash position to $68.8 million at the end of June from $3.1 million a year earlier and declared an interim dividend of 21 Hong Kong centsper share. It had not distributed dividends in the prior year.
The company, which in addition to its manufacturing business has the brands What For and Stella Luna, expects volumes to continue to recover in the second half of 2021, although the pace of volume and revenue growth is likely to slow down from the second half of 2020 due to the higher base. A year-on-year comparison of quarterly shipment volumes for the remainder of 2021 could also be uneven due to the significant impact of the pandemic on the normal seasonality of the group’s shipment volumes and product mix in 2020. Stella noted that the resurgence of Covid-19 cases in Southeast Asia has led some countries to tighten prevention measures, which is affecting the supply chain.
It anticipates its product mix to normalize as demand for casual and fashion footwear picks up. Stella still sees sports shoes as its “main growth driver” in addition to the luxury category. It pointed out that it will incur higher development costs as it builds up its client base for luxury shoes.
Stella’s luxury brand clients include Alexander Wang, Balenciaga, Balmain, Chloé, Jimmy Choo, Prada, Stella McCartney, Maison Margiela and Moncler. For sports shoes, it has Hoka One One, Lacoste, Nike, Saucony and Under Armour among its clients. Its fashion clients include Cole Haan, Kate Spade, Michael Kors and Tony Burch.
The company stressed that it continues to prioritize margin improvement and steady volume growth.
In its outlook, Stella indicated that the opportunities in the footwear industry are the increased popularity of athleisure, with luxury brands also experimenting in this category; brands seeking new suppliers to improve speed-to-market and address direct-to-consumer requirements; clients diversifying their supply chain and finally the consolidation of the footwear manufacturing industry.
Among the challenges, it cited the impact of a new wave of Covid-19, port congestion, trade policies such as ongoing tension between the U.S. and China, and counterparty risk management.
