Lining Shares Fell Continuously, Lining Introduced Policies To Ease Inventory Crisis

Compared with the same period last year, the volume of orders for footwear products in the fourth quarter of 2012 is down by two digits compared with that of the same period last year. Orders for clothing products also exceed 20%.

After the performance warning report was released, Lining's share price fell for two consecutive days. The company also took a look at the company's share price and downgraded.

The reason is closely related to the "structural" saturation of the industry. Although the Li Ning Co began to clean up inventory as early as the end of 2010, but because of internal management and execution and many other reasons, it has spent a lot of money and energy, but it is slow.

Agencies downgraded

In the evening of June 11th, Lining issued a performance warning notice. Compared with the same period last year, the volume of orders for shoes products in the fourth quarter of 2012 was down by two digits compared with the same period last year, and the order amount of clothing products also exceeded 20%.

The announcement indicates that the order for 2012 has been completed so far, and the order volume of Lining's annual new product orders will also decline one digit year-on-year.

At the same time, Lining Group signed a memorandum of cooperation on June 11th to become the equipment sponsor of the Chinese men's Basketball League. The agreement covers five seasons from 2012/2013 to 2016/2017.

The announcement also said that the impact of the amount and duration of CBA sponsorship contracts, Lining group's brand marketing and promotion costs will increase significantly, plus the impact of intangible assets such as Lotto concession business and interest on convertible bond interest, it is expected that in the first half of 2012 and the full year of 2012, the pre tax profits and shareholders' profits will be substantially reduced compared with the same period in 2011.

After the performance warning report was released, Lining's share price fell for two consecutive days.

Meanwhile, Merrill Lynch said it expects Lining's profit levels to decline by 36% and 37% in 2012 and 2013, respectively.
Forecast Ltd's 2012-2013 - year earnings ratio is 11.5 times, and it is estimated that profitability will not improve in the next 12 months. Because of low income, the whole industry to inventory, and advertising and expenditure increases, the Bank of America Merrill Lynch Lining's target price from 8.8 HK $47% to HK $4.7, rating from "neutral" to "lose the big market".

JP Morgan lowered Lining's regular earnings survey of 10% in 2012. He believed that with inventory problems and substantial discounts, sportswear departments still had difficulties. Therefore, to maintain Lining's "reduction" rating, the target price was reduced from HK $7 to HK $4.5.

Guotai Junan international also lowered Lining's 2012-2014 year net profit forecast by 37.3%, 23% and 17.6% respectively, reducing the company's rating to "reduction", and reducing the target price to 4.33.
Hong Kong dollar. He also said that Lining's recovery was longer than expected, and that sponsorship of CBA was not a value for money. It was disappointing about the deterioration of the company's profitability.

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"Structural" saturation of sporting goods industry

In fact, in 2011, Li Ning Co began a large decline in its performance. Lining's 2011 Annual report shows that
The total revenue in 2011 was 8 billion 929 million yuan, a decrease of 5.8% compared with 2010, and the pre tax profit plus depreciation and amortization was 891 million yuan, 49.4% lower than that in 2010; the profit of equity holders should be 386 million yuan, which was reduced by 65.2%. compared with 2010.

Goldman Sachs Gao Hua reported that China's sports brand is facing a series of structural problems, such as slow growth of low end demand, and Nike and Adidas from global brands.
Competition, low brand equity and lack of differentiation. The report said that the cyclical problem of excess channel inventory is worsening the industry. It is expected that the trade figures for the next few quarters will be disappointed.

And China Merchants Securities (600999, stock bar) released in May 14th sports goods industry report also pointed out that Lining, Anta, 361 degrees, PEAK and other sporting goods enterprises released 2011 Annual report together reflects the sales growth decline, profitability decline, inventory problems intensified industry phenomenon. The growth rate of domestic sporting goods market has dropped from 20% annually to 13% in 2011. It is estimated that the market growth rate in 2012 will slow down to around 5-8%. The report thinks that the current stock backlog is not a real market saturation, but a "structural" saturation phenomenon.

First, clean up the inventory but slow down.

Look at the annual reports of sporting goods companies in 2011. You can see that, like other similar companies such as Anta, 360 degree , Peak Compared with XTEP, Lining had the highest gross profit margin in 2011, but the net interest rate was much lower than the other four companies.

2011 Annual report shows that Lining In 2011, the gross profit of the company was 4 billion 114 million 513 thousand yuan, which was 8.19% lower than that of 4 billion 481 million 599 thousand yuan in 2010. However, the operating profit after deducting the cost of distribution and administrative expenses changed to 630 million 956 thousand yuan in 2011, which was reduced by 59.21%. compared with 1 billion 546 million 775 thousand yuan in 2010. It can be seen that Lining spent a lot of money on the cost of distribution in 2011.

In terms of distribution costs, in addition to the increase in expenditure in advertising, marketing and other aspects, two noteworthy items are: the provision for receivable trade allowance has increased from 474 thousand yuan in 2010 to 10 million 246 thousand yuan in 2011, and the inventory impairment has increased from 42 million 556 thousand yuan in 2010 to 72 million 427 thousand yuan in 2011. The two expenditures are mainly for Lining to increase wholesale discounts for dealers and repurchase stock.

In fact, as early as 2010
At the end of the year, Lining found the clue of inventory backlog, so he decided to integrate distribution channels, increase the wholesale discount to dealers, improve the management of retail efficiency, optimize the terminal inventory structure and other measures to reduce inventory pressure. The company finally decided to buy a wholesale value of about 3 from the retailer.
In addition, we should increase the inventory and increase the establishment of discount stores and factory stores, and speed up the inventory clearance.

At the same time, in order to improve the efficiency of channel management, Li Ning Co took the initiative to control the pace of opening stores in 2011, and integrated some small distributors. At the same time, streamlining personnel and reducing costs were aimed at focusing on core business and optimizing the organizational structure to enhance operational efficiency.

Lining's series of channel integration strategy is still slow. Lining's total inventories in 2011 increased by 40.6% to 11.3 over the same period.
The turnover of inventory also increased from 52 days to 73 days. Total accounts receivable increased by 30.5% to 2 billion 100 million yuan over the same period, and accounts receivable turnover days increased from 52 days to 76 days. And cash flow from 2010.
The 990 million yuan in 2007 dropped to 15 million 570 thousand yuan.

In June 13th, Zhao Xiaoze, a researcher at China Merchants Securities Research Department, pointed out that the main reason for the decline of Lining's performance was due to the overall depression of China's sporting goods industry. Of course, Lining's own position is fuzzy and its internal management efficiency is low, and its execution is not enough.

But Zhao Xiao also believes that in the overall downturn of the sporting goods industry, all sporting goods companies will face the pressure of overstocking, and because Lining is the first to go to inventory, it is likely to recover from the downturn before other sporting goods companies.