Despite China’s resilience against the pandemic in the third quarter, Yue Yuen Industrial Holdings remained in the red, following two quarters of losses. The company was strongly impacted by government measures to contain the spread of the disease at the start of the year, and although the Pou Sheng Chinese retail business bounced back in the third quarter, the footwear manufacturing segment continued to struggle.
The world’s largest shoe manufacturer posted a net loss of $154.0 million for the first nine months of the year, against net income of $229.4 million for the year-ago period. Excluding one-time charges due to temporary factory closures and adjustments in production capacity, Yue Yuen suffered an adjusted net loss of $141.9 million against a profit of $212.4 million last year.
Revenues dropped by 19.1 percent to $6,086 million, hit by lower Chinese retail sales and sluggish footwear demand due to restrictions.
The manufacturing segment saw revenues fall by 21.8 percent to $3,196 million for the nine-month period, with the number of pairs shipped decreasing even more by 25.4 percent to 178.8 million. This was mostly due to delayed shipments and reduced or cancelled orders due to lower demand amid the pandemic. In addition, Yue Yuen noted that the third quarter is traditionally a low season period for the group’s manufacturing business. The segment’s gross margin contracted by 4.7 percentage points to 13.5 percent, hampered by operating deleverage on the lower sales volumes.
Sales of athletic footwear dropped by 12.4 percent to $2,841 million, casual/outdoor shoes & sports sandals tumbled by 58.0 percent to $355.0 million, and sales of soles, components and other categories dipped by 22.8 percent to $270.5 million.
Retail sales in China by the company’s Pou Sheng subsidiary declined by 10.0 percent to $2,619 million in the first nine months of 2020, hampered by the government’s lockdown measures and store closures in February and March. However, Pou Sheng returned to growth in the third quarter, supported by a steady recovery in offline sales and growth from omni-channel, as retail activity in China progressively returned to normal. Pou Sheng’s gross margin for the first nine months fell by 4.1 percentage points to 30.1 percent, due to increased levels of promotional activity. The subsidiary’s net income attributable to shareholders stood at $25.3 million, down by 70 percent as compared to the first nine months of 2019.
Looking at the rest of the year, Yue Yuen said that while global demand is likely to remain subdued as a new wave of Covid-19 infections hit markets in Europe and North America, it is seeing some signs of improvement in the fourth quarter of 2020, as global retail spending slowly recovers. The group will continue to proactively monitor the situation, impose strict cost control measures and focus on its cash flow management.