China’s Athletic Sales Resume Growth

China’s Athletic Sales Resume Growth

Pou Sheng International Holdings Ltd, which is one of the largest retailers and distributors of Adidas, Nike and other international athletic footwear, apparel and accessories brands in China, reported its operating profits more than doubled in the six months ended June 30, when its sales grew 9.1 percent to $966.6 million.
The company, which is publically traded but controlled by footwear manufacturer Yue Yuen International Holdings Inc., attributed the increase to solid growth in the retail business sales, which more than compensated for the shrinkage in sales for the brand licensee business and the manufacturing business.

Retail Business
The retail business reported revenue of US$960 million, an increase of 13.9% compared with the same period last year. This was primarily due to improvements in store productivity within the distribution network. As at June 30, 2014, the Group had 3,868 directly operated retail outlets and 2,405 retail sub-distributors. Within the network of the regional joint ventures, there were 691 directly operated retail outlets and 400 retail sub-distributors. Whenever possible the Group will pursue being the exclusive distributor for a brand. During the period, the Group had an exclusive distribution arrangement with the brand O’Neill, involving the regions China, Hong Kong and Macau.

Various restructuring actions were taken for this business in the last year so that activity for this category fell in the period. As a result, brand licensee related sales dropped to US$3.1 million, representing a decline of 77.4% compared with fiscal year 2013.

Gross profit for the Group amounted  to  US$287.9  million.  Gross  profit  margin was 29.8%. Both gross profit amount and gross profit margin were better than the comparable amounts achieved in the same period last year. The dominance of the retail business was key to achieving better figures in this area.

Selling and distribution expenses and administrative expenses of the Group for  the period were in aggregate US$278 million, representing 28.8% of total revenue and the ratio remained similar to last period. The various steps taken by management to control expenses continue to be effective. Much effort continues to be spent in fine tuning the store mix so that low yielding stores are closed, and new ones are opened in locations with good customer traffic.

The Group operating profit margin for the period was 1.6%, and operating profit was US$15.8 million, a significant improvement compared with the operating profit of US$7.6 million in the same period last year.

Most joint ventures were involved in the sales of domestic brand products. Due to the general improvement in consumer spending on sportswear as well as inventory issues being much less of a concern, these ventures experienced better times. The discounting and proactive promotion needed were of a smaller magnitude and thus  the  share  of results of an associate and joint ventures incurred losses of US$1.8 million for the half year. For the same period last year, the loss from these categories was US$3.5 million.

The Group incurred various gains (losses) from a variety of situations amounting the net loss of US$2.4 million in the half year.

Due to the aforementioned reasons, loss for the Group in this half year was US$2.6 million which was an improvement over the loss of US$15.6 million in the same period last year.

The average inventory turnover period for the period was 157 days (2013: 177 days). The reduction in inventory turnover period was due to the tighter scrutiny of inventory at the stores and the increase in consumer spending during the half year. The Group continues to explore different strategies for managing inventory so as to optimize working capital levels. The average trade receivables turnover period was  33  days (2013: 35 days), which remained consistent with the credit terms of 30 to 60 days that the Group gives to its department store counters and retail distributors. The average trade and bills payables turnover period was 20 days (2013: 22 days).

As at June 30, 2014, the Group’s cash and cash equivalents were US$84 million (December 31, 2013: US$61.4 million) and working capital (current assets minus current liabilities) was US$546.5 million (December 31, 2013: US$606.4 million). Our total bank borrowings decreased by 20% to US$214 million from US$267.6 million as at December 31, 2013 and are repayable within one year. The Group’s current ratio was 231% (December 31, 2013: 231%). The gearing ratio (total borrowings to total equity) was 25% (December 31, 2013: 30%).

During the period, net cash generated from operating activities was US$91.3 million. The Group believes its liquidity requirements will be satisfied with a combination of capital generated from operating activities and bank borrowings in the future. Net cash used in investing activities was US$18.1 million, of which US$8.6 million was used to purchase of property, plant and equipment. Net cash used in financing activities was US$30.4 million. During the period, the Group raised and repaid bank borrowings of US$128.5 million and US$163 million respectively.

Pou Sheng Segment Results, Six Months ended June 30, 2014


BusinessUS$’000 BusinessUS$’000 BusinessUS$’000 totalUS$’000 EliminationsUS$’000 ConsolidatedUS$’000
REVENUEExternal sales – sportswear and footwear products   

















concessionaire sales 7,625 7,625 7,625
Inter-segment sales* 1,870 224 2,094 (2,094)
 Total segment revenue  960,046  5,003  3,638  968,687  (2,094)  966,593

Segment results














Puo Sheng Segment Results Six Months ended June 30, 2013



Retail Business US$’000 Licensee Business US$’000 ManufacturingBusiness








REVENUEExternal sales – sportswear and footwear products  

















concessionaire sales 7,012 7,012 7,012
Inter-segment sales* 6,518 6,518 (6,518)
Total segment revenue 843,053 20,353 29,357 892,763 (6,518) 886,245

Segment results