Yue Yuen Industrial said that its manufacturing business continues to face a number of uncertainties, including intense competition and the changing demands of its clients, such as the shortening of lead times and increased seasonality.
Revenues from manufacturing activities declined by 1.5 percent to $5,390 million in 2018 for the world's largest shoe producer. The volume of shoes it made during the period inched up by 0.4 percent to 326 million pairs and their average selling price fell by 2.0 percent to $16.53 per pair.
Specifically, sales of athletic footwear rose by 1.5 percent to $4,267 million, but a decrease of 13.5 percent was recorded in sales of casual and outdoor shoes, down to $1,031 million, while revenues from the manufacturing of soles and other components and products fell by 20.5 percent to $491 million. On the other hand, sales of sports sandals jumped by 16.5 percent to $91.8 million.
Sales declined by one percent in the U.S. and declined by one percent in Europe. Yue Yuen reported that sales to Customer A (presumably Nike) rose by 7 percent to $1,776.9 million, while sales to Customer B (probably Adidas) declined by 4 percent to $1,602.1 million, after two years of increases.
The gross margin on the group's manufacturing operations eased down by 1.5 percentage points to 19.5 percent, with Yue Yuen blaming fluctuations in clients' orders and an unfavorable product mix.
Overall, adding also wholesale and retail revenues, Yue Yuen's total revenues rose by 6.3 percent to $9.69 billion.
Revenues from apparel wholesale activities jumped by 54.6 percent to $392.1 million, while the group's retail subsidiary, Pou Sheng, saw its revenues rise by 23.3 percent to $3,421.7 million. The management attributed the spurt to the growth momentum in the Chinese sports retail market. However, excluding retail sales, the group's turnover dropped by 20 percent in China and was flat in the rest of Asia.
Also, Pou Sheng's gross margin decreased by 1.5 percentage points, which the company blamed on a change of channel mix, increased discounts and clearance sales of emerging brands.
Higher selling and distribution expenses, higher finance costs and extraordinary losses of $18.5 million caused the profit attributable to Yue Yuen's shareholders to fall by 40.9 percent to $307.1 million for the year. The management pointed out that its profitability was also impacted by a number of factors including volatile monthly revenues, lower order visibility, and operating deleverage, particularly on the manufacturing side. Labor costs went up by 3 percent. Excluding one-off items, net earnings declined by 35.0 percent to $325.7 million.
Moving forward to 2019, Yue Yuen said it will continue to leverage its core strengths and competitive edge to overcome these long- and short-term challenges in order to address the demand for shorter lead times, limit the impact of order volatility, and safeguard its sustainable and steady growth. To this end, it will be investing in resource planning and data management systems such as SAP. It will seek to make the group's new automation more efficient. It will invest in production workflow optimization, process re-engineering and other enhancements to its manufacturing capabilities.