Hongxing Erke Continued Its Decline In The First Quarter Of Last Year

In 2009, domestic brands, such as Lining, Anta, PEAK and XTEP, all achieved an increase of more than 20% year-on-year. However, Hongxing Erke, who was listed in Singapore, was not 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 its 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 business units of Hongxing Erke, sales of sportswear and clothing with a high gross profit rate and an important position in revenue have declined 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 many provincial cities in China, which takes up quite a part of the funds. The idea of self-management has also slowed down the enthusiasm and speed of its franchisees to open shops, and the slow expansion of stores has led to the fact that sales can not break through, which has become the main cause of its poor performance.

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.

Xu Zhihua, chief executive of PEAK, said that PEAK's same store sales grew by about 15% in the first quarter of this year. Consumers' demand for sporting goods is still growing due to lifestyle changes. He is optimistic about the development of the domestic sporting goods market. As for the problems of some brands' operating performance, they are not good enough to evaluate.