UPDATE 1-China footwear retailer Belle meets profit forecasts

Tue Aug 21, 2012 7:52am EDT

* Says inventory levels unlikely to affect sales in H2

* Shares up more than 10 pct this year, outperform index

* Analysts expect company to outperform rivals

By Donny Kwok and Rachel Lee

HONG KONG, Aug 21 (Reuters) - Top China footwear retailer Belle International Holdings Ltd met forecasts with an 11.7 percent rise in first-half net profit, and analysts predicted it would outpace competitors even as slow economic growth dampens consumer spending.

Belle, which distributes brands including Nike, Adidas, Kappa, PUMA, Converse and Mizuno, on Tuesday posted its slowest growth rate since the second half of 2008, but continues to expand its store network while squeezing more sales out of each store.

As economic conditions pinch, footwear companies are increasing promotion campaigns, narrowing profit margins. But analysts expect Belle to outperform competitors helped by a wider distribution network and better inventory management.

The gross profit margin of its footwear business contracted to 67.6 percent during the period, from 68.6 percent a year ago, while sportswear margins fell to 37.1 percent from 37.4 percent.

That compared with smaller rival Daphne International whose gross profit margin fell to 60.7 percent in the first half from 61.2 percent a year ago.

Belle said January-June net profit rose nearly 12 percent to 2.24 billion yuan ($352.23 million), thanks to strong same-store sales growth and expansion of its network, against an average forecast of 2.2 billion yuan by five analysts polled by Reuters.

Revenue rose to 16.02 billion yuan, from 13.9 billion a year ago.

INVENTORY OUTLOOK

The company's average inventory turnover days stood at 170.5 days in the first half, slightly higher than the 167.6 days in the same period of 2011.

Belle said its footwear inventory level was healthy, while that of its sportswear business was slightly above its target.

"We do not expect significant pressure on retail sales in the second half coming from the current inventory position," Chief Executive Officer Sheng Baijiao said in a statement.

In July, Belle posted better same-store sales for its footwear and sportswear businesses in the second quarter of 2012 as compared with the first quarter, a rare bright spot amid a series of downbeat news from China's consumer sector, which is feeling the impact of a slowdown that has hit demand for everything from home appliances to luxury goods.

Chinese consumer goods companies have come under pressure from stiff competition and a slowing economy, leading to profit warnings and unnerving investors wary over what impact the slowdown will have on bottom lines.

China's annual economic growth cooled to 7.6 percent in the April-June period, the slackest in more than three years, confirming a downtrend that leaves full-year growth on course for its softest showing since 1999.

Retail sales growth in China continue to pull back this year, rising 13.1 percent in July from a year ago after logging a 17.2 percent annual growth pace in July last year.

Belle shares closed 0.54 percent lower on Tuesday before the earnings were released but have risen nearly 10 percent so far this year, slightly outpacing a 9 percent gain in the benchmark Hang Seng Index.

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