Stella International saw revenues for the nine months ended Sept. 30 tumble by 12.7 percent over the year-ago period to $1,192.8 million. While its retail business in China began to recover in the third quarter, rising to the equivalent of $16.1 million, revenues from manufacturing declined by 18.3 percent to $454.9 million, with volumes going down to by 13.1 percent 14.6 million pairs and average selling prices per pair falling by 6.0 percent to $31.2.
The Chinese shoe manufacturer and retailer, which is quoted on the Hong Kong stock exchange, said this drop was brought on by the great level of uncertainty caused by the British vote in June 2016 to leave the European Union, coupled with the recent terrorist attacks in France and Germany and the failed military coup in Turkey.
During the nine-month period, Stella said it experienced a slowdown in demand for its footwear products, particularly in the casual footwear segment, largely as a result of the weak retail environment in North America and Europe. This led to a lower utilization of non-sports footwear factories, causing drops in efficiency and margins. The lower volumes, combined with declining unit prices for shoes, negatively affected its financial performance during the period.
Revenues from Stella's retail segment declined by 9.5 percent to $48.8 million during the first nine months of this year, with same-store sales in China down by 9.3 percent to $37.8 million. However, the performance of the retail business in the country improved by 4.6 percent to $16.1 million between July and the end of September. Stella operates 177 Stella Luna stores, 60 What For stores and one JKJY by Stella store in China.
The company said it continued to implement its retail optimization strategy during the period, which involves closing underperforming stores, launching multi-brand stores and opening new stand-alone stores in high-potential shopping malls in China, as well as using online platforms to clear off-season merchandise.
Despite lower sales overall, the group continued to experience strong demand for its “athleisure” products - a hybrid product segment that is replacing the space traditionally occupied by casual footwear that remains one of its key growth drivers. The company noted that the athleisure footwear trend was becoming more and more prevalent in China, as changing lifestyles and new aspirations are rapidly transforming the landscape of footwear retailing. However, the growing demand for these products also cannibalized demand for casual footwear products.
Looking ahead, the group forecasts that orders for its footwear products will stabilize toward the end of 2016 and the beginning of 2017. At the same time, it expects to improve operational efficiency by implementing strict cost controls as well as further reducing its workforce. Stella will also continue expanding its presence in Europe. In addition, it will continue to work with leading global retailers and department stores, including Lane Crawford and Barneys New York, which recently resulted in the group's retail brands becoming available on their e-commerce platforms. It plans to introduce its own brands in new markets such as Hong Kong and the U.S. for the first time.