Yue Yuen Industrial Holdings is warning investors that its results for the first quarter of 2020 will show a net loss of $50 million to $70 million, compared with a gain of $75 million in the year-ago period, because of the disruption of its supply chain and the lockdown of the Chinese retail stores that belong to its Pou Sheng subsidiary.
The world’s largest supplier of footwear said its manufacturing revenues went down by 10 percent during the quarter. The group has moved much of its production outside China, where most of its facilities were closed during the coronavirus outbreak, but factories in other countries were affected by shortages of raw materials and other inputs coming from China.
Most of Yue Yuen’s Chinese plants are now operating again, but they have been brought to a standstill in some other countries where local governments have ordered shutdowns because of the pandemic.
In the past year, the group said continued efforts to diversify its manufacturing base away from China, and to a lesser extent from Vietnam and Indonesia, moving some operations to Bangladesh, Cambodia, Myanmar and others countries. Only 13 percent of the pairs delivered by the group were made in China, compared with 44 percent in Vietnam and 39 percent in Indonesia.
For the past financial year, Yue Yuen reported a few weeks ago a 4.2 percent increase in its total sales to $10,105 million in 2019, driven by a double-digit increase in retail revenues. However, the company’s gross margin narrowed by 0.3 percentage points to 24.9 percent and its net income fell by 2.1 percent year on year to $300.5 million. It warned that 2020 results will be significantly impacted by the Covid-19 pandemic.
Revenues from the manufacturing segment improved by 2.0 percent to $6,001 million last year, but the gross margin in the segment lost 1.1 percentage points to 18.4 percent due to higher labor and material costs. The net income was off by 10 percent to $215.6 million.
The volume of footwear shipped by the group declined by 1.1 percent to 322.4 million pairs, but their average selling price rose by 4.3 percent to $17.24 per pair. Sales of athletic shoes advanced by 6.4 percent to $4,541.6 million, while casual and outdoor shoes dropped by 12.1 percent to $906.2 million and sports sandals jumped by 19.9 percent to $110.1 million. Meanwhile, sales of soles, components and other items decreased by 9.8 percent to $442.6 million and the apparel wholesale business tumbled by 99.9 percent to $171.8 million due to the divestment of an apparel wholesale subsidiary in the U.S., Texas Clothing Holding Corp., in May.
Revenues from manufacturing were down by 3.5 percent in Europe, which represented 16.9 percent of the total turnover in the segment, compared to 18.3 percent in 2018. They declined by only 7.1 percent in the U.S., in spite of the incremental U.S. tariffs on Chinese goods. In China, they progressed by 14.6 percent, and they gained 1.0 percent elsewhere.
Retail sales, which were generated in China by the company’s Pou Sheng subsidiary, went up by 14.9 percent to $3,933 million, including a 5.0 percent gain in comparable store sales.
The group ended the year with a total staff of about 347,100. They are given bonuses to reward their contributions and “work enthusiasm,” said Yue Yuen.
Citing ”uncertainties in the global trade environment,” which are leading the brands to adopt more flexible procurement policies, Yue Yuen said it will continue to adjust the allocation of its production by country. But, it pointed out that the process will take some time before reaching optimal efficiency.