Li Ning Company (2331) H2 2020 earnings summary

Executive summary

• 2020 revenue rose 4.2% and net profit margin improved 260 bps to 11.7%, despite COVID-19 disruption and heavy retail promotions.

• Positive operating cash flow of CNY 2.76bn and net cash of CNY 7.44bn supported a resilient balance sheet and continued business investment.

Financial highlights

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

• Gross profit increased CNY 289m on revenue growth and flat gross margin; other income and interest rose CNY 240m, mainly from grants and interest income.

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

Outlook and guidance

• 2021 guidance targets mid-20s top-line growth and ~100 bps net profit margin improvement; the two-year margin gain from 2019 is expected to exceed 350 bps.

• Planned investment includes channel and category expansion, brand elevation, operations, and increased R&D capabilities.

• Priorities include omni-channel integration, high-quality profitable stores, efficiency gains, and a shift from wholesale toward retail operations.