Li Ning Company (2331) H2 2019 earnings summary

Executive summary

• 2019 revenue rose 32%; adjusted operating margin reached 11.4% and net profit margin rose 230 bps to 9.1%, excluding the net effect of a one-off non-operating item.

• Operating cash flow increased 110% to CNY 3.5bn; net cash rose CNY 2.29bn to CNY 5.96bn.

• Core-brand retail sell-through grew in the high-20% range, with high-teens full-year same-store sales growth.

Financial highlights

• Revenue grew 32%; apparel rose 34% and footwear 32%, adding CNY 1.75bn in gross profit.

• Gross margin expanded 1 percentage point; net profit margin increased from 6.8% to 9.1%, excluding the one-off non-operating item.

• Total sales-related variable costs rose CNY 491m, equal to 14.6% of incremental revenue versus 20.7% in 2018.

• Advertising and promotion expenses increased CNY 236m, or 22%, while falling to 9.6% of revenue from 10.4%.

Outlook and guidance

• Pre-coronavirus 2020 targets were mid- to high-teens top-line growth and 10%-10.5% net profit margin; revenue guidance was withdrawn due to uncertainty.

• Target remains 10%-10.5% net profit margin unless the virus's negative impact continues into H2; discretionary spending and controllable costs are being managed prudently.

• China LI-NING store target for 2020 was 170-200, subject to market and coronavirus conditions.