Li Ning Company (2331) H2 2018 earnings summary

Executive summary

• 2018 revenue exceeded CNY 10bn for the first time, reaching CNY 10.5bn, up 18%; net profit rose 39% to CNY 715m.

• Growth reflected stronger products and channels, improving retail productivity, and disciplined cost control alongside investment in product, retail and new business initiatives.

Financial highlights

• Revenue increased 18% to CNY 10.5bn; apparel grew 27% and footwear 11%.

• Gross margin expanded 1 percentage point; gross profit increased CNY 876m.

• Operating margin rose to 7.4% from 5%; net profit increased CNY 200m, or 39%, to CNY 715m, and net margin reached 6.8% from 5.8%.

• Operating cash flow rose 44% to CNY 1.67bn; net cash increased CNY 1.14bn to CNY 3.67bn.

Outlook and guidance

• 2019 revenue growth target: high teens, driven by mid-single-digit offline same-store sales growth, better direct-store productivity, e-commerce expansion and Li-Ning Young penetration.

• 2019 net margin target: 7.5%-8%, with operating margin improvement of 150-200 bps; guidance allows for macro and execution risks.

• Q3 2019 wholesale orders were tracking low-teens growth; e-commerce 2019 top-line growth plan was low 20s with profitability maintained in the high 20s.

• Direct-store profit margin was expected to reach mid-teens in 2019; wholesale gross margin could approach mid-40s.