The annual net income of the world’s largest maker of athletic, casual and outdoor footwear hit $115.1 million in 2021 against a loss of $90.8 million in the prior year. Yue Yuen made an operating profit (Ebit) of $175.4 million for the year against an operating loss of $51.4 million, as the annual gross margin improved to 24.0 percent from 21.7 percent. Total revenues rose by a meager 1.05 percent to $8.53 billion from $8.44 billion as Yue Yuen faced manufacturing challenges in Vietnam due to Covid-related shutdowns during the third quarter and a “challenging and bumpy” recovery for its Pou Sheng retail business in China last year. Because of the global pandemic, total revenues were well below the $6 billion level achieved in 2019.
Yue Yuen’s manufacturing business declined in terms of volume by 2.5 percent for the year to 238.3 million pairs but realized a 3.8 percent increase in revenues to $4.91 billion. The segment’s gross margin rose by 0.8 percentage points to 15.5 percent despite the negative impact in the second half from the factory closures in South Vietnam and material supply bottlenecks. The group’s manufacturing operations in Vietnam progressively recovered in the fourth quarter as it moved to streamline operations and better balance capacity utilization in the factories.
The company’s retail business declined by 2.4 percent to $3.62 billion last year. It faced weakened consumer sentiment in China and closed 658 stores in the market to end 2021 with 4,631 directly operated units and 3,786 stores operated by sub-distributors across Greater China. The company continued to focus on larger stores of more than 300 square meters, accounting for 16.2 percent of the store fleet. Revenues from e-commerce rose to 21 percent of the total.
A major negative factor was the local backlash over sourcing in Xinjing against western brands such as Nike, Adidas and Puma, for which Pou Sheng operates many stores in China. Retail revenue declined by 8.8 percent in the local currency, but the segment’s operating margin improved to 4.0 percent from 2.6 percent, thanks to less discounting a better sales mix.
By segment, the company’s manufacturing division generated its biggest increase from the sale of soles, components and other parts, which jumped by nearly 28 percent to $463.5 million. Sales in the much bigger athletic and outdoor shoe segment rose by 2.6 percent to $3.76 billion. On the downside, sales of casual shoes and sports sandals slid by 2.5 percent to $688.3 million.
The average selling price went up by 4.4 percent last year to $18.68 per pair as Yue Yuen continued to refine its product mix to focus on higher-value orders. The company said it faced the challenge of reducing lead times from its international footwear brand partners from a normal 10-12 weeks to 30-45 days in many instances due to fast-fashion trends and evolving market conditions.
Vietnam (35%), Indonesia (48%) and China (12%) accounted for 95 percent of all footwear production. The company said the disruption in Vietnam forced it to continue to optimize the country of origin set-up. In 2020, Vietnam’s share was much higher at 46 percent, followed by Indonesia at 39 percent and China at 11 percent.
Yue Yuen’s largest single client was responsible for 36 percent of its manufacturing revenues, up from 33 percent in 2020. The share of the second-largest one dropped to 27 percent from 31 percent. The clients’ names were not disclosed.
Regionally, sales to Europe declined by 3.2 percent last year to $1.21 billion. They fell by 3.1 percent in China to $4.45 billion. Sales into the U.S. were strong, rising by 20.4 percent to $1.69 billion. Sales to other Asian countries outside of China were off by 3.7 percent to $818.6 million, and sales to all other countries improved by 3.8 percent to $362.4 million.
