Li Ning Company (2331) H2 2020 earnings summary

Executive summary

• FY2020 revenue grew 4.2%; net profit margin improved 260 bps to 11.7%, despite COVID-19 disruption and a highly promotional retail environment.

• Low-single-digit core-brand platform sell-through growth and disciplined cost, inventory and working-capital management supported positive operating cash flow of CNY 2.76bn.

Financial highlights

• Revenue rose 4.2%; apparel and footwear recorded mid-single-digit growth, while accessories grew at a low-teens rate.

• Gross margin was flat; gross profit increased CNY 289m. Adjusted operating margin rose to 15.2% from 11.4% in 2019, excluding the 2019 goodwill provision.

• Net profit margin increased to 11.7% from 9.1%, a 260-bps improvement; financial comparisons exclude CNY 234m of one-off non-operating income recorded in 2019.

• Platform expenses fell CNY 156m; advertising and promotion expense decreased CNY 47m to 8.9% of revenue from 9.6% in 2019.

Outlook and guidance

• FY2021 guidance: mid-20s top-line growth and ~100-bps net profit margin improvement; 2019–2021 margin improvement expected to exceed 350 bps.

• Planned investment in channel and category expansion, brand elevation, operations and R&D, while balancing recovery opportunities against macro uncertainty.

• Priorities include omni-channel integration, higher-productivity stores, consumer-focused retail, and continued efficiency and profitability improvement.