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Yue Yuen predicts $70 million loss for March quarter, cites Covid-19

Chinese sports-shoe manufacturer and retail conglomerate Yue Yuen Industrial is predicting a loss of up to US$70 million in the March quarter as a result of the Covid-19 crisis – a big turnaround from a $75 million profit in the same quarter a year earlier. 

In a profit warning filed with the Hong Kong Stock Exchange, chairman Lu Chin Chu said the pandemic significantly impacted the operations of various business segments of the company. 

Yue Yuen makes shoes for a raft of brands, including Geox, Levi’s, Rockport, Carters and Pony. Its subsidiary Pou Sheng operates a network of some 5500 directly operated stores and 3000+ sub-distributor stores, predominantly in Mainland China.

The company was hit on both fronts: shipment delays of shoes led to manufacturing revenue falling by 9.6 per cent year on year to US$1.26 billion and the closure of Pou Sheng’s stores across Mainland China meant retail revenues plunged as well. Pou Sheng recorded a net loss of about RMB167 million (US$23.6 million) for the quarter. 

At Yue Yuen, the decrease in revenue was “mostly due to shipment delays amid lower operating efficiency at some of the group’s manufacturing facilities in China and other countries resulting from the Covid-19 pandemic,” Chu said in a stock-exchange filing. 

“The pandemic delayed work resumption at the group’s factories in China after the Lunar New Year; it also adversely impacted its supply chain, resulting in a shortage of certain raw materials. This also led to additional production capacity adjustments in China and other countries.”

As of this week, however, almost all of the group’s factories in China and more than 98 per cent of stores run by Pou Sheng had resumed operations. 

“However, the spread of Covid-19 to US and Europe had severely dampened global consumer demand for athletic footwear, the chain effect of which is negatively affecting both footwear manufacturers and sports retailers,” said Chu. 

“In addition, government lockdowns and other social-distancing measures being imposed in various Southeast Asian countries to contain the Covid-19 pandemic is expected to further hinder the operating efficiency of the group’s manufacturing facilities in this region. This, together with uncertainty about demand, may result in temporary factory closures and further adjustments to the group’s production capacity.”

Yue Yuen says the figures it has released are based on preliminary assessment of accounts, with finalised figures for the quarter will be released on May 14. 

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