Hongxing Erke Continues 2009 Recession

Hongxing Erke in 2009, domestic Lining, Anta, PEAK and XTEP and other sports brand business turnover has achieved year-on-year growth of more than 20%, but Hongxing Erke listed in Singapore has not been so lucky. In the first quarter of 2010, it continued to decline in 2009, while the company's revenue decreased by 13.5% compared with the same period last year, and gross profit decreased by 31.9% compared with the same period last year.

According to the insiders, Hongxing Erke's poor performance is due to the fact that it is still suffering from the excessive expansion of the market after the listing, which also leads to poor expansion of the company's sales channels.

Hongxing Erke quarterly report shows that as of March 31st this year, the company's income in the first quarter was 491 million yuan (RMB, the same below), a decrease of 13.5% compared to the same period last year, and gross profit was 155 million yuan, a decrease of 31.9% compared to the same period last year.

In the various business units of Hongxing ERK, the sales of sportswear with high gross interest rate and important position of income have fallen sharply.

In the first quarter of this year, Hongxing Erke realized 157 million yuan of clothing and 45.9% year-on-year decrease. Although the income of sports shoes and accessories increased by 18.2% and 78.1% respectively, it was still useless, resulting in a year-on-year decline in gross income and overall gross profit margin from 40.2% in the same period last year to 31.6%.

Hongxing Erke's performance in the first quarter continued its decline since 2009.

According to the 2009 annual report, Hongxing Erke's income decreased by 30.8% to 2 billion yuan compared to 2008. The income in three branches of sports shoes, clothing and sports accessories decreased by 40.2%, 8.3% and 68.2% compared with that of the previous year.

On the issue of declining performance, Hongxing Erke explained that, first, the domestic market demand weakened, and the excess inventory of dealers led to Hongxing Erke had to reduce the dealer's take delivery price, so that dealers can digest inventory.

Sporting goods market watchdog Ma Gang said to the first financial daily, because of the abnormal climate this year, many areas directly pition from winter to summer, the sales of spring sporting goods in various enterprises have been greatly affected, but each should be able to maintain sales growth of 10% year-on-year and left and right. He believes that the difficulties facing Hongxing Ke are mainly the lack of sales channels.

According to Hongxing Erke, at the end of 2009, there were about 4003 retail outlets in Hongxing Erke, while the number at the end of 2008 was 3824, with an increase of only 179. Compared with other major sporting goods brands, the annual rate of four digit outlets was not good enough. In the first quarter of this year, Hongxing Erke opened only 27 stores, but it was less than 1/6 of the number of new stores opened in 2009.

Ma Gang believes that Hongxing Erke has set up a self flagship store in several provincial cities in China, which takes up quite a part of the funds, and the idea of self operation has also delayed its operation.

Another analyst, Lin Weiyue, told reporters: "Hongxing Erke has been blindly expanding and rushing fiercely in Singapore after its listing in Singapore. Some stores that only cost 1 million yuan have been taken off at 2 million ~300 yuan, not counting the number of local stores to expand their stores. In addition, a lot of money has been invested in advertising, and there have been some problems in internal management."

Hongxing Erke expects that the trend of recession will continue throughout the year 2010, and face many challenges in the future. It will continue to implement austerity strategies in advertising and other aspects to reverse the trend of decline.

　　匹克首席執行官許志華說，匹克今年一季度同店銷售額增長在15%左右，消費者由于生活方式的改變對運動用品的需求仍然在增長，他看好國內運動用品市場的發展，至于有些品牌經營業績不理想的問題，各家情況不同，不好評價。