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SBD Global/December 18, 2012/Finance

Li-Ning Warns Of Substantial Losses, First-Half Profit Plunges By 85%

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Chinese sportswear company Li-Ning said in a statement that it "expects substantial losses this year," according to Li Woke of the CHINA DAILY. The company said that the losses "will be mainly due to the implementation of its sales channels revival plan, on which it plans to spend 1.4 to 1.8B yuan ($222M-285M) (CHINA DAILY, 12/17). BLOOMBERG's Wong & Chan reported Li-Ning's first-half profit plunged by 85% as "higher prices for materials, labor, rent and discounts for distributors hurt profit margins and the company shut some stores." Guotai Junan Securities Co. analyst Jerry Peng said, "Li-Ning’s annual loss will surely exceed analysts’ previous consensus estimates, but I believe the company is taking decisive measures to tackle the inventory problem at once." Analysts expect Li-Ning to "report a net loss of 120.8M ($19.4M) yuan this year." Li-Ning "dropped 3.9% to close at HK$4.70 ($0.6) in Hong Kong" trading Monday (BLOOMBERG, 12/17). In N.Y, Tom Orlik wrote the problem for Li-Ning is "massive overproduction in anticipation of demand that never arrived." That left retail channels "stuffed with unsold inventory, forcing discounted sales and making it more difficult to get new products to consumers." It tarnished Li-Ning's brand too, and "helped push China's sports fans into the arms of Nike and adidas." The hope is Li-Ning "can earn an edge over competitors by bringing fresh, new products to market and clearing out old stock without a fire sale that would further dent the brand." However, it is an expensive strategy that "will cost at least 3.6 times profit for the whole of last year" (WALL STREET JOURNAL, 12/17).

FEELING THE HEAT: Li-Ning Monday announced a sponsorship deal with the NBA Miami Heat, effective immediately, giving the China-based brand the designation of official partner. The deal is part of a marketing program to support Heat G Dwyane Wade's new signature line of footwear and apparel. Aspects of the partnership include signage at AmericanAirlines Arena and other advertising assets on team properties, such as Heat.com and TV broadcasts on Sun Sports. Li-Ning products will be sold at the arena in '13 (Li-Ning).
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