China's Li Ning posts first annual loss since 2004 listing

HONG KONG, March 26 Mon Mar 25, 2013 8:03pm EDT

HONG KONG, March 26 (Reuters) - Chinese sportswear group Li Ning Co Ltd reported on Tuesday a steeper-than-expected 1.98 billion yuan ($318.8 million) loss for 2012, its first annual loss since it listed in 2004, hit by inventory charges and fierce competition from domestic and foreign brands.

The result compared with a profit of 385.8 million yuan in 2011 and was deeper than the average forecast of analysts for a 1.09 billion yuan loss, according to Thomson Reuters Starmine SmartEstimate.

China's economic slowdown had resulted in inflated stock levels and depressed earnings for retailers, including local and foreign sportswear players - a sharp reversal of fortune after an expansion blitz that followed the 2008 Beijing Olympics.

Li Ning, backed by Singapore sovereign fund GIC and U.S. private equity firm TPG Capital, had warned in December of a big loss in 2012 as it racked up as much as $288 million in expenses by buying back inventory from distributors. The company had said it expected inventory charges to cut its full-year earnings by up to 1.8 billion yuan.

"Market and industry conditions continue to be difficult, and the Group's financial performance is expected to remain challenging at least in the first half of 2013," company founder and Chairman Li Ning said in a statement on Tuesday.

Li Ning, which competes with larger domestic rival ANTA Sports Products, Adidas and Nike, recorded a 2.02 billion yuan loss for the second half of 2012, deeper than market estimates of a 1.13 billion yuan loss. In the first half, it had posted an 85 percent drop in profit to 44.3 million yuan.

Revenue in 2012 fell to 6.74 billion yuan from 8.93 billion yuan in the previous year.

Li Ning, which gained attention late last year when it signed U.S. basketball star Dwayne Wade to produce a new line of sportswear, had a network of 6,434 retail stores in China at the end of December, a net decrease of 1,821 stores from the end of 2011. It said its gross profit margin was 37.8 percent in the period, down from 45.3 percent a year earlier.

ANTA Sports reported in February a 21.5 percent drop in 2012 net profit.

Nike, which has been grappling with intense competition in China, posted last week a forecast-beating quarterly profit and saw a turnaround in demand in greater China, with orders rising 4 percent, after falling in the previous two quarters.

Li Ning's shares have fallen 7.7 percent so far this year, lagging a 1.8 percent drop in the benchmark Hong Kong index .

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