Anta Sports Products’ turnover increased by 20.2 percent to 8.90 billion renminbi but net profits went up only 11.5 percent to 1.73 billion renminbi as profit margins were squeezed by the ongoing issues that adversely impact the sportswear retail sector. Its gross profit margin dropped by 0.5 percentage point to 42.3 percent, while operating profit margin and net profit margin dropped 0.8 percent to 22.6 percent and 1.5 percent to 19.4 percent respectively.

 

The company expects its pre-orders for the 2012 third quarter to decrease by high single digits on a year-on-year basis. This is a further slowdown from the growth of low single digits anticipated in the first two quarters this year.

 

Average trade receivable turnover days – an indicator of the firm’s working capital condition -- went up significantly to 26 days from 19 days. Average turnover days which show inventory cycles increased slightly to 38 days from 36 days. Free cash flow dropped 3.9 percent to 1.22 billion renminbi.

 

Since early last year, Chinese sportswear retailers have struggled with the onslaught of rising raw material costs, slowing demand for sportswear products, stiffer competition and inventory overstock. Inventory build-up has forced some retailers to give deep discounts to their distribution channels.

 

In response to such challenges, Anta says it will adopt a prudent strategy in store expansion and effectively control inventory levels. It will also implement a more flexible arrangement for processing new orders and replenishing orders reflective of rapidly changing market trends.

 

By end of 2012, the company plans to expand its network to 7,800 to 8,000 Anta stores, 800 to 900 Sports Lifestyle series stores and Kid series stores respectively, and 250 to 300 Fila stores. This number is compared to 7778, 887 and 632 stores respectively in the three categories by end of 2011. The number of Anta stores in China’s eastern region has dropped by 141 during the year.

 

“Uncertainties and keen competition continue to cast clouds over China’s sportswear market and are exacerbated by inventory overstock and discounting in its distribution channels,” the company says in a statement.