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China's Belle's annual net at 9-year low on weak footwear
May 15, 2017 / 3:18 PM / in 5 months

China's Belle's annual net at 9-year low on weak footwear

HONG KONG, May 15 (Reuters) - China’s Belle International Holdings, subject of a private equity takeover approach last month, posted its lowest full-year net profit since 2008 as it continues to grapple with e-commerce and shoppers’ growing preference for sports shoes over traditional fashion footwear.

Net profit declined to 2.40 billion yuan ($348.31 million)for the year ended in February from 2.93 billion yuan a year ago, and was lower than the 2.9 billion yuan profit forecast by SmartEstimate.

Last month, a consortium led by private equity firms Hillhouse Capital Group and CDH Investments offered to buy out China’s top footwear retailer at HK$6.30 per share, valuing the company at HK$53.1 billion ($6.8 billion).

UBS said in a research note the fundamentals of Belle’s footwear network continued to deteriorate on falling sales and foot traffic, and investors were likely to accept the offer.

“The footwear business is facing tough challenges due to changing patterns of foot traffic in retail channels and shifting style preferences of consumers,” Chief Executive Officer Sheng Baijiao said in a statement.

“In response to such critical circumstances, the group must fundamentally transform the footwear business and find a new method to adapt to the changing environment in order to survive and thrive in the long term,” Sheng said.

Belle, which hopes to boost its e-commerce presence to compete more effectively as Chinese consumers increasingly shop online, had warned in March of a 15 percent to 25 percent drop in annual profit.

Sheng said the transformation should be “consumer-oriented and technology-driven”.

Belle said it had experienced “unprecedented challenges” from e-commerce and shopping malls that compete with its main sales channels in department stores.

The company, which distributes sportswear for firms such as Nike, Adidas, PUMA and Converse, saw revenue rise 2 percent to 41.7 billion yuan, helped by its sportswear and apparel business.

Revenue for its sportswear and apparel business jumped 15.4 percent while sales of footwear sales slid 10 percent. Its overall footwear business accounted for more than half of total revenue, while its sportswear segment made up the rest.

Its gross profit margin declined to 54.3 percent from 56.3 percent a year ago in evidence to a tough business environment.

The company directly managed 20,716 retail outlets in China at end-February, including 13,062 footwear and 7,654 sportswear and apparel outlets. It operated 20,873 outlets a year ago.

The announcement came after Hong Kong markets closed on Monday. Belle’s Hong Kong-listed shares, which lost 25 percent of its value in 2016, are up 39.5 percent so far this year. That compared to a 14.9 percent rise in the benchmark index. ($1 = 6.8905 Chinese yuan renminbi) (Reporting by Donny Kwok and Lee Chyen Yee; Editing by David Evans)

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