SBD/July 6, 2012/Finance

Li Ning CEO Steps Down; Stocks Surge With Backing Of TPG Capital

Chinese apparel brand Li Ning “surged in Hong Kong trading after its chief executive officer stepped down and private-equity firm TPG Capital said it could boost investment in the sportswear retailer if needed,” according to Chan & Lee of BLOOMBERG NEWS. The company in a statement said that Founder Li Ning will “help run the company while it searches for a new CEO to replace Zhang Zhi Yong.” Kim Jin Goon, a partner at TPG Capital that “invested in the retailer this year, will be executive vice chairman.” Li Ning’s profit “plunged 65 percent last year amid escalating competition” from Nike, adidas and Anta Sports Products. The stock rose 7.3% to US$0.65, the “most since Feb. 9, at the close of Hong Kong trading.” Li Ning said that it will “seek to improve results through marketing investments, and clearing its inventory.” Kim said that the company “won’t rule out raising capital although it currently doesn’t have plans to do so.” Guotai Junan Securities analyst Jerry Peng said, “I think Li Ning’s brand positioning is not quite clear. Li Ning is actually trying to increase retail prices to be close to Nike and Adidas in the past several years, but domestic customers still prefer international brands if the price is similar.” Li Ning’s profit for the year ended Dec. 31 fell to US$60.6M from US$172.8B a year earlier. The company last month said that profit will “have a ‘rather substantial decline’ this year amid higher marketing expenses and an impairment loss on a brand licensing business” (BLOOMBERG NEWS, 7/5). The FINANCIAL TIMES’ Tsui & Sender cite a source as saying, “There is too much product. There was 30 per cent too much stock in the channel back in 2009 and this year, consumption has slowed month by month” (FINANCIAL TIMES, 7/6).

PRESSURE MOUNTS: The WALL STREET JOURNAL’s Fiona Law notes although Li Ning “retained its No. 1 position among domestic brands, it is facing mounting competition from local players such as Anta Sports Products.” Li Ning and its rivals also “face a slowdown in China's sports apparel market." On Tuesday, one of Li Ning's “major domestic rivals, Peak Sport Products Co., issued a profit warning for the first half and full year of 2012, citing industrywide inventory correction and sluggish economic conditions that have hurt demand” (WALL STREET JOURNAL, 7/6).
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