* Li Ning warns of substantial loss for 2012
* To book up to $288 mln charge to clear inventory
* Inventory overhang a problem for many retailers in China
* Shares fall 4 pct, down 23 pct for the year to date
By Alison Leung
HONG KONG, Dec 17 Sportswear firm Li Ning Co Ltd
warned it will post a substantial 2012 loss as it
racks up as much as $288 million in expenses under a plan to buy
back inventory from distributors, one of the thorniest problems
facing retailers in China.
China's economic slowdown has 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.
The plan was necessary to ensure that its distributors got
back on a path of long-term growth amid fierce competition in a
saturated industry, said Li Ning, which competes with the likes
of Nike Inc and ANTA Sports Products Ltd.
Shares in Li Ning fell 4 percent on Monday, with analysts
saying that although the plan provided for distributors to begin
afresh, the company would still be saddled with the stock.
"They are saying now that we are going to be aggressive (to
bring down inventory) and buy back old products," said Huei-Chen
Flannery, an analyst at KGI.
"But they still need to resell them at a cheaper price and
it is going to take a longer process for them to bring
everything back to a healthy level," she said.
Other local competitors like Xtep International Holdings Ltd
and 361 Degrees International Ltd have
slashed prices to deal with high inventories but it remains to
be seen if Li Ning's move will force them to redouble efforts to
reduce stock, analysts said.
Buying back inventory and improving Li Ning's sales network
would cut its full-year earnings by between 1.4 billion yuan and
1.8 billion yuan ($288 million), the company said.
Founded by former Olympic gymnast Li Ning, and backed by
Singapore sovereign fund GIC and U.S. private equity
fund TPG Capital, China's best known sportswear firm
has tried to bite the bullet. The company said in July that its
CEO would step aside, and that Li and TPG's Kim Jin-Goon would
lead the firm for the time being.
Adding to the uncertainty, the company is still looking for
a new chief executive, as well as chief financial officer after
its previous CFO left in October.
At the time of the July announcement, Kim, who has a strong
track record in driving change at consumer and retail companies
in South Korea and China, said it could take 6-12 months for
inventories to return to normal and that it may be three years
before the group's earnings rise steadily.
The company's stock is now down 23 percent for the year to
date, underperforming a 22 percent gain in the blue chip Hang
Seng Index and coming on top of a more than 60 percent
decline in its shares in 2011.
Founder Li Ning sold a 25 percent stake in the company in
October to his talent management firm Viva China Holdings Ltd
for $175 million.