UPDATE 1-Nike, Adidas China distributor Belle warns economy's sag means 2 lean years

Tue May 27, 2014 3:17am EDT

* Fierce competition in store and online weighs on retailers

* Robust sportswear sales to outpace footwear division

* Net profit rose just 1 percent in fiscal year ended Feb (Adds comment from CEO, earnings outlook details)

By Donny Kwok

HONG KONG, May 27 (Reuters) - China's biggest shoe retailer Belle International Holdings Ltd said it expects sluggish growth in the world's second-largest economy to weigh on its earnings for the next two years after profit edged up just 1 percent in its latest fiscal year.

As fierce competition in stores and online makes life tougher for China retailers, Belle is counting on robust sales of popular global sportswear brands like Nike and Adidas to cushion a more subdued performance by the shoes it makes itself that still generate most of its profit.

Chief Executive Sheng Baijiao said Belle expects strong brand recognition to help lift same-store sportswear sales by a high-single digit percentage this fiscal year, compared with 6 percent last year. Sales at its footwear division, including affordable in-house brands like Staccato and Tata targeted at younger Chinese women, should rise by a low single-digit percentage, compared with 0.6 percent last year.

"We see some improvement in our same-store sales in March-May quarter as compared to the previous quarter, but (footwear business) in not out of the woods yet," said Sheng, in charge of the largest footwear retailer in China by market value.

Speaking to reporters in Hong Kong, Sheng said the company may slow down its store opening pace in the current fiscal year in wake of the weak sentiment.

Retailers like conglomerate China Resources Enterprise have reported the softer economy is already taking its toll. Some are locked in price wars that are slicing into profit margins, while a rapid expansion of department store space and a surge in online retail have diluted foot traffic in Chinese stores.

With a network of nearly 20,000 stores strung across China, Belle reported net profit rose 1 percent to 5.16 billion yuan ($827 million) for the 14 months ended February, compared with 5.11 billion yuan in a comparable 14-month period ended February 2013.

Belle, worth $9 billion by market value, changed its financial year-end date to the end of February from December earlier this year. For the 14 months revenue at Belle rose 10 percent to 43.06 billion yuan, up from 39.13 billion yuan in the 14 months ended February 2013.

"The macroeconomic outlook for the next two years is not optimistic," Sheng Baijiao said in a filing to the Hong Kong bourse late on Monday. "The consumer retail market is expected to be under continued pressure due to weak consumer sentiment."

Licensed sportswear sales accounted for about 39 percent of Belle's total revenue. Belle has said that Nike and Adidas - which together make up 90 percent of the division's sales - have much better brand recognition in China, as well as a more extensive product offering, than second-tier clients such as French retail group Kering SA's Puma sports brand and Nike's Converse sneakers.

In the footwear division, Sheng said he expects operating profit margins to remain stable at about 22 to 24 percent.

The business is more profitable than the higher-priced licensed sportswear sales because Belle can book all revenue and profit from sales of most of the brands in the footwear unit itself. The division does include some licensed international footwear brands, like Hush Puppies and Clarks.

Shares of Belle were down 1.9 percent in Hong Kong, while the benchmark Hang Seng Index was off 0.04 percent. The stock, which fell nearly 50 percent last year, has dropped about 9 percent so far this year.

For full statement click: link.reuters.com/wyb69v

($1 = 6.2392 Chinese Yuan) (Reporting by Donny Kwok; Editing by Anne Marie Roantree and Kenneth Maxwell)

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