Li Ning Company (2331) H1 2018 earnings summary

Executive summary

• H1 revenue rose 18% to CNY 4.7bn; reported net profit increased 42% to CNY 269m, with net margin at 5.7%.

• Core-brand retail sell-through grew mid-teens; same-store sales delivered high-single-digit growth, supported by direct retail and e-commerce.

• Stronger gross margin, disciplined expense control and improved working capital supported higher profit and cash generation.

Financial highlights

• Revenue increased 18% to CNY 4.7bn; apparel revenue grew 30% and footwear revenue rose 9%.

• Reported net profit rose CNY 80m, or 42%, to CNY 269m; net margin improved to 5.7% from 4.7%.

• Gross margin improved 1 percentage point; gross profit increased CNY 390m.

• Operating cash flow increased over 12% to CNY 660m; net cash rose CNY 874m to CNY 3.05bn.

Outlook and guidance

• FY guidance remained mid-teens revenue growth and 6.5%-7% net profit margin, with prudence reflecting macro uncertainty and merchandising improvements still underway.

• Management expected Q3 sales trends to continue, with wholesale improving; Q4 outlook was cautious due to a higher prior-year base and macro uncertainty.

• FY18 operating-margin improvement target remained 200 bps; tax-rate differences were expected to limit net-margin improvement to roughly 100 bps.

• Management anticipated the two newer brands to reach breakeven in FY18 and profit in the following year; LI-NING YOUNG was already profitable in H1.