BELLE (01880) 880 Million RMB Buys Mainland Sportswear Dealers

BELLE (01880) announced that it would purchase all rights and interests of Big Step Limited (Target Corp) at the cost of 880 million yuan.

Target Corp sells and distributes sportswear products in some cities and cities in China, and operates about 600 self operated retail outlets to sell Nike and Adidas brand products. Its distribution brand is basically the same as BELLE's existing businesses.

The cost of takeover may be adjusted by reference to the net assets of the target group on the delivery date, up to 920 million RMB.

BELLE sports apparel revenue fell last year

The half year report released by BELLE international last year showed that the total income of sports apparel business has fallen from 45.9% in 2008 to 39.7% in the first half of this year. The second tier brand clothing income, including Reebok, is still in decline.

According to the semi annual report, in the six months ending June 30, 2010, BELLE's international income and operating profit amounted to 11 billion 152 million 500 thousand yuan and 1 billion 828 million 400 thousand yuan respectively, representing an increase of 19.8% and 44.5% respectively.

The main driving force for BELLE's growth is the increase in the revenue of its own brand.

In the first half of this year, the revenue of BELLE international private footwear brand was 6 billion 130 million 200 thousand yuan, which accounted for 55% of the group's revenue, an increase of 3.4 percentage points compared with the same period last year, and the revenue growth rate reached 27.6%. As a comparison, BELLE's internationally distributed sports brand products such as Nike, Adidas, Reebok and so on had an overall income of 4 billion 428 million 600 thousand yuan, and the overall growth rate of revenue was 10.9%, accounting for 10.9% of the total revenue of the group, which declined from 42.9% in 2009 to 39.7%. In earlier 2008, sports apparel products accounted for 45.9% of the total international revenue.

There are two main categories of sportswear products distributed by BELLE international, one is the first-line sportswear brand, including Nike and Adidas, the other is the second-line sportswear brand including Reebok, Kappa (Kappa), Kang Wei (etc.).

BELLE international is considered to be the largest distributor of Adidas in China, while Adidas China has not yet been out of difficulty in the first half of this year after its performance recession in 2009.

According to the financial report, in the first half of this year, due to the influence of more stock and other factors, Adidas's Greater China region's revenue in the first half of the year was 403 million euros, a decrease of 16% compared with the same period last year. Although Nike's performance is acceptable, BELLE's international first-line sportswear brand performance has been overshadowed.

Compared with the year-on-year growth in the overall performance of the first-line sports brand, BELLE's international distribution of Reebok and other second-line sports brand revenue is bleak.

In the first half of this year, BELLE International's second-line sports brand revenue was 568 million 800 thousand yuan, a year-on-year decrease of 9.9%, of which Reebok's performance was particularly unsatisfactory.

Insiders said to the first financial daily that as of June 30, 2010, the number of second-line brand stores in BELLE's international sporting apparel business was 729, but at the end of 2008, the number was 1152, with a decrease of 423.

Analysts believe that compared with BELLE International's own brand products, the gross profit margin of sports brand, especially the second-line sportswear brand, is much lower, which leads BELLE international to invest more and more resources in the operation of its own brand products.

In the first half of this year, the gross margin of BELLE international footwear and its own brands reached 68.4%, an increase of 3.9% over the same period last year, while the overall gross profit margin of sportswear products was only 36.1%, down 0.2% from the same period last year.