Falling order volumes from high-profile footwear brands are taking a toll on Yue Yuen Industrial’s bottom line.
The Hong Kong-listed manufacturer issued a profit warning on Friday in which it predicts its surplus for the six months to June 30 will be down by between 50 and 55 per cent on the US$175 million it recorded over the same period last year.
Chairman Lu Chin Chu said manufacturing revenue was down by 19 per cent year on year as the footwear industry continued with its ongoing “inventory destocking cycles”.
Yue Yuen makes shoes for brands, including Geox, Levi’s, Rockport, Carters and Pony. Its subsidiary Pou Sheng operates some 5500 directly operated stores and 3000+ sub-distributor stores, predominantly in Mainland China.
Lu said a weak order book has resulted in the company’s plants operating below capacity and optimum efficiency and the company has had to streamline its operations resulting in severance expenses of about $21 million.
While the manufacturing arm of the company has been suffering, the Pou Sheng retail arm “saw decent recovery momentum” during the half year to June, largely due to the lifting of the final pandemic-related movement and trading restrictions in Mainland China.
Pou Sheng’s revenue increased by about 11 per cent in RMB terms and its profit attributable to shareholders soared by about 1654 per cent to circa RMB305 million ($42.6 million), partly offsetting the decline of the group’s manufacturing business.
“The uncertain macroeconomic outlook alongside conservative approaches being seen across the industry will continue to weigh on the order visibility of the group’s manufacturing business in the near term,” said Lu. “The group will continue to proactively monitor the situation and dynamically allocate its manufacturing capacity to balance demand, its order pipeline and labour supply.”
He promised an ongoing focus on cost controls and cash flow management.
Yue Yuen Industries will release its audited results on August 11.
While the company has reported a decline in profit, the result is far better than its predicament in the immediate wake of Covid-19, when in April 2020 the company suffered a loss of $70 million for the March quarter.
