Despite a decline in production volume and average prices, Yue Yuen Industrial has raised its turnover by 3.9 percent to the equivalent of $4,448.2 million for first half of this year, supported by a slight increase in athletic shoe sales and the expansion of its Chinese retail business.
Yue Yuen's footwear manufacturing business was down by 0.7 percent to $2,990.0 million for the six months, with a drop of 1.6 percent in volume to 163.0 million pairs. Their average selling price fell by 1 cent to $16.47.
The Taiwan-based manufacturer raised its sales of athletic shoes, up by 0.3 percent to $2,071.5 million, and its turnover with soles and components firmed up by 7.6 percent to $304.9 million. However, the group's sales of casual and outdoor shoes contracted by 6.8 percent to $569 million and sales of sports sandals fell by 17.8 percent to $44.7 million.
The gross profit margin for this manufacturing business reached 20.8 percent, up by 0.6 percentage points, despite rising wages and a slight increase in material costs. Vietnam accounted for about 46 percent of the volume, compared with 35 percent for Indonesia and 17 percent for China.
Yue Yuen said it continued to work with its international brand customers to raise productivity across manufacturing plants, and to improve supply chain efficiency in key regions. It has been striving to offer what it describes as “economies of value,” with advanced materials and manufacturing techniques that help the brands to respond more rapidly to consumer demand and to differentiate their product ranges.
When it comes to the retail business, comprising Pou Sheng and other entities, Yue Yuen reports that its turnover increased by 15.0 percent to $1,458.1 million. At the end of June, the company had 5,464 directly operated stores and counters, and another 3,036 stores operated by sub-distributors in China.
Pou Sheng reported separately that its sales were up by 14.5 percent to 9,515.1 million Chinese yuan renminbi (€1,208.1m-$1,421.5m) for the six months with its own YY Sports stores as well as stores operated for leading sports brands. The business was supported by China's overall economic growth, along with a double-digit rise in Chinese retail spending. However, Pou Sheng acknowledged that spending on sports products has diversified, which requires adjustments in marketing and sales approaches, and more investment for larger and more attractive stores.
The group has embarked on a project to integrate its stationary retail business with more electronic activities and sports services, which are to take advantage of synergies and reinforce relationships with consumers. Several pilot projects were launched in the second quarter to improve Pou Sheng's online and offline business. In the second half, the sports services division will manage a series of large-scale sporting events for running, marathon, basketball and baseball across the Greater China region. The group is also continuing to diversify through partnerships with leisure and fashion brands, such as Rockport, Geox, Carter's Levi's footwear and Pony.
Pou Sheng's gross profit was up by 11.3 percent to RMB 3,292.0 million (€418.2m-$491.9m), implying a decrease in the gross profit margin, due to an increased allowance for inventories, because it has been taking longer than expected to clear out inventories. At the same time, Pou Sheng invested in store expansion and optimization, store upgrades and staff training, which led to more rental expenses, concession fees and staff costs. The retail group's operating profit margin slumped by 1.6 percentage point to 5.3 percent, and its net profit dropped to RMB 311.5 million (€39.6m-$46.5m), down by 18.6 percent.
The Yue Yuen group's profit excluding one-off items increased by 3.1 percent to $240.9 million. The extraordinary items amounted to $17.6 million, including $9.4 million in gains due to fair value changes on derivative financial instruments, and $9.8 million in gains on the disposal of associates. However, this does not affect the comparison, since the first six months of 2016 also included one-off items of $15.0 million. The group's net profit landed at $279.5 million, up from $275.3 million.²
Yue Yuen says it faces rising labor costs in many locations, and more demands from labor groups. However, the group added it would continue to diversify its manufacturing capacity and to come up with innovation, in order to help its customers manage their input costs and comply with the relevant standards and requirements.
The group's guidance is upbeat on the retail side, due to the favorable policies adopted by the Chinese government to support sports participation. The company will continue to expand its omni-channel capacity and to open new store formats, such as premium and children's stores. At the same time, the retail business is continuing to optimize its inventory management.
