Citing intense competition and changing ordering patterns in the industry, the world's largest shoe manufacturer, Yue Yuen Industrial (Holdings) said it will continue to increase automation levels, investing in new technology and process re-engineering to enhance the efficiency of its operations.
It said it would leverage its core strengths and competitive edges to cope with short-term and long-term challenges such as the clients' demand for shorter lead times, increased seasonality or monthly order volatility. It also mentioned stronger than expected wage inflation, volatile raw material prices and foreign exchange movements. It added that it was closely monitoring the increasing trade frictions and the implementation of new import tariffs.
Yue Yuen may be in a better position than other China-based shoe manufacturing to face the new trade tensions, as it has moved a large part of its manufacturing operations from China to Vietnam and other Asian countries.
However, the company reported a 4.5 percent decline to $2,563.6 million for its shoe manufacturing operations during the first six months of this year.
The volume of shoes that it produced during the period dropped by 2.5 percent to 158.9 million pairs, while their average selling price slipped by 2.0 percent to $16.14 per pair. In particular, sales of athletic shoes declined by 3.6 percent to $1,996.7 million, while sales of casual and outdoor shoes fell by 8.2 percent to $522.6 million. Sales of sports sandals went down by 0.2 percent to $44.6 million, and those of soles and other components decreased by 14.2 percent to $261.5 million.
This was compensated in part by an increase of 143.9 percent to $191.5 million in the apparel wholesale business and an increase of 27.1 percent to $1,752.8 million for Pou Sheng, the group's retail subsidiary.
Yue Yuen said it is investing heavily to improve the shopping experience and other aspects of its Pou Sheng operations.
As a result, the group's total revenues went up by 7.2 percent to $4,769.4 million during the six-month period.
The gross profit rose at a more modest rate of 5.3 percent to $1.19 billion, including a 14.9 percent decline in the manufacturing business due to fluctuating order patterns and an unfavorable product mix.
While the overall gross margin declined by about 0.5 percentage points to 24.98 percent, Pou Sheng's gross margin fell by 1.1 percentage points to 34.6 percent, mainly because of changes in the channel mix, increased discounts and clearance sales for emerging brands.
The bottom line showed a 41.9 percent drop in the attributable net profit to $150.1 million for the period. Adjusted for exceptional items, the net profit declined by 31.5 percent to $165.0 million.