Mar 17, 2011
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Li Ning sees slower orders growth, eyes more stores

Mar 17, 2011

March 17 - Chinese sporting goods brand Li Ning Company Ltd expects its projected order growth to be lower in the third and fourth quarters this year compared to the previous two quarters, but slight improvement is expected in store sales for 2011, the company's chief said on Thursday.

Li Ning basketball shoes

Shares of Li Ning fell 10.4 percent, its biggest single-day fall in percentage terms in nearly three months, to its lowest in two weeks at HK$14.12 by the lunch break. This compared with a 1.8 percent drop in the benchmark Hang Seng Index.

"We expect the orders growth will be at its lowest in the third quarter," Chief Executive Officer Zhang Zhiyong told a news conference.

Li Ning, China's second-biggest player accounting for 36 percent of market share in term of sales after Nike, aims to maintain gross profit margin at 46-47 percent, Zhang said.

"The profit margin may trend downwards as raw material costs, such as cotton, continue to rise," Zhang said, adding that increasing labour costs also put pressure on the bottom line.

Facing tougher competition from foreign brands such as Adidas, and local rivals including Anta Sports Products, Peak Sport Products, and 361 Degrees International, Li Ning plans to open more stores especially in second- and third-tier cities.

Li Ning expects the number of stores to rise to 9,400 in 2013, from 8,900 in 2012 and 8,300 in 2011. It operated 7,915 stores at end of 2010.

"A mid-single digit growth in same store sales will be seen this year," Zhang said, an improvement from about 3.9 percent growth for 2010.

Li Ning expects the sporting goods industry in China to maintain 13-14 percent growth in the coming years. The domestic market accounted for 98.6 percent of its sales last year.

The home grown sports brand will also increase its spending in advertising and promotion, with expenses for 2011 seen accounting for 16-17 percent of revenues, up from 15.4 percent in 2010, chief financial officer Nicholas Chong said.

Li Ning met forecasts with an 11.5 percent rise in second-half net profit, and said the sporting goods sector was set to benefit from rising incomes, and a shift in China's economy to a consumption-driven model from an investment-driven one. But competition and rising costs will also affect growth this year.

(Reporting by Donny Kwok; Editing by Jacqueline Wong)

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