Thanks to structural reforms such as the introduction of a direct-franchise model to ensure a sufficient supply of products in the stores, the Chinese sports company's revenues were up by 14.2 percent in the first half ended on Sept. 30, reaching 899.3 million yuan renmimbi (€115.1m-$128.1m).
China Dongxiang owns the rights to the Kappa brand in China and the global rights to Phenix, the Japanese brand of sports apparel that it bought in 2008.
The group's gross margin declined by 3.5 percentage points, but remained high at 65.4 percent of sales. Operating earnings went up by 7.9 percent to RMB 247 million (€31.7m-$35.2m). On the other hand, the comprehensive net profit attributable to shareholders jumped by 36.2 percent to RMB 188 (€24.1m-$26.7 m), boosted by a foreign exchange gain of RMB 207 million (€26.5m-$29.4m).
The sales increase was driven by a rise of 17.4 percent to RMB 749 million (€95.9m-$106.5m) in China, while sales in Japan inched up by 0.7 percent to RMB 150 million (€19.2m-$21.3m).
The company says it enhanced the penetration of the Kappa brand in the Chinese fashion market through campaigns with celebrities such as Zitao Huang, a Chinese artist, as well as the implementation of its integrated online and offline marketing strategy.
The management said the effects of the group's structural reforms have gradually become apparent, especially in its own retail business. China Dongxiang reported strong sales growth in shopping malls, with ongoing improvements being made to the overall offline store structure. In addition, it reported higher growth overall in its outlet stores.
Thanks to the implementation of a multi-platform strategy, sales through Tmall and JD.com continued to grow. The proportion of customers aged 18 to 24 placing online orders increased by 16 percentage points to 50 percent.
As of Sept. 30, 2019, the group had a total of 1,461 Kappa stores, including 285 Kappa Kids' stores. There were 43 units fewer than on March 31, 2019, as the group further reduced the number of under-performing stores.
Revenues from the Kappa brand in China advanced by 20.4 percent to RMB 661 million (€84.6m-$94.0m), driven by an 18.8 percent gain in apparel to RMB 500 million (€64.0m-$71.1m) and a 22.2 percent improvement in footwear to RMB 143 million (€18.3m-$20.3m).
Kappa Kids' sales were off by 14.8 percent, however, accounting for 6.9 percent of the company's total sales in China, in spite of store promotions and investments in marketing initiatives such as a popular “Chinese Football Boy” campaign.
In Japan, Kappa sales increased by 2.0 percent to RMB 52 million (€6.6m-$7.4m) and Phenix sales remained flat at RMB 98 million (€12.5m-$13.4m), as the company continues to restructure its operation there, focusing on marketing and sponsorships to drive brand awareness.
Revenues from other markets and other businesses increased by 28.6 percent but remained marginal at RMB 36 million (€4.6m-$5.1m).