Half Year 2026 Li Ning Co Ltd Earnings Call
Speaker #1: Let me introduce our management: Executive Chairman and Joint CEO, Mr. Li Ning; Executive Director and Joint CEO, Mr. Qian Wei; Group Vice Presidents and CFO, Mr. Zhao Dongsheng; in today's event, Mr. Zhao will first present our 2026 interim results and then the Chairman will talk about our strategic direction, Mr. Qian will go through our operational progress, followed by Q&A.
Speaker #1: You are welcome to ask questions during that session. Mr. Zhao, please. Good morning, everyone. I'm Zhao Dongsheng. I will now reveal our company's financial performance for the first half of the year.
Speaker #1: In the first half of the year, against the backdrop of a weak domestic consumption environment, we actively planned and operated prudently, and achieving the following results: in terms of financial results, our revenue increased by 2.8% to 15.235 billion RMB, thanks to cost optimization.
Speaker #1: The group's gross profit margin was up 0.9 percentage points to 50.9%. We persisted in cultivating our core business, strengthened investment in brand resources, and optimized operational efficiency through channel synergy and lean management, ultimately achieving net profit of 1.816 billion RMB and net profit margin of 11.9%.
Speaker #1: Overall financial situation is good, net operating cash flow was 954 million RMB, up or down 60.4% year-on-year, mainly due to the year-on-year increase in cash expenses and certain prepayment generated from new cooperation with Stephen Curry.
Speaker #1: Average operating capital-to-revenue ratio is 7.8%, cash turnover period 35 days, an increase of 4 days compared to same-period last year. Maintaining a healthy level.
Speaker #1: The board recommended an interim dividend of 35.12 cents per share, maintaining payout ratio of 50% to ensure continued shareholder returns. In terms of operations, Li Ning main brand omnichannel retail sales increased by 0 single-digit year-on-year.
Speaker #1: Offline new product retail sales through accounted for 83% of the total offline. Amount. Maintaining reasonable level. At the end of June, total inventory to sales ratio across all channels was 4 months.
Speaker #1: An inventory level and inventory age structure remained healthy. Overall, the indicators for the first half were largely in line with expectations. However, the retail environment faced numerous challenges.
Speaker #1: After a stable start in the first quarter, Q2 saw frequent weather disturbances, continued weakening demand, and deepening discounts at retail outlets. Impacting sales since Q2.
Speaker #1: The second half of the year will present even greater operational risk and challenges. In the first half, the group's overall revenue was up 2.8% year-on-year, apparel revenue performed exceptionally well, up 12% year-on-year.
Speaker #1: Its share of total revenue was up 3 percentage points to 38%. Among them, training and sports casual achieved steady growth, while outdoor products and the gold label series achieved high growth during the period.
Speaker #1: Contributing incremental growth to the apparel sector. Footwear revenue increased by 1% year-on-year, accounting for 54% of total revenue. The slowdown in footwear growth was mainly due to several factors.
Speaker #1: First, the core footwear products were affected by weak consumption, leading to deeper discounts and impacting retail sales through performance. Second, base figure for the same period was at a historically high level, creating temporary pressure.
Speaker #1: Third, frequent occurrence of extreme weather events such as typhoons and heavy rains in the first half of the year caused some disruption to running outdoor travel and terminal retail conversion.
Speaker #1: Revenue from accessories down 18% year-on-year, mainly due to the fact that badminton accessories entered a cyclical adjustment phase after two consecutive years of explosive growth.
Speaker #1: In the first half, channel share remained stable and balanced. Wholesale revenue accounted for 46%. Direct retail revenue 23%. E-commerce revenue 31%. D2C business revenue 50%.
Speaker #1: Above. Sales of new products retail sales through of new products within the last 6 months accounted for 83% of total, remaining at a reasonable level.
Speaker #1: For channels, total number of POs in the first half of the year was 7,579, an increase of 45 compared to same period last year.
Speaker #1: Among them, number of Li Ning brand stores decreased by 36, Li Ning Yang increased 81. During the period, the domestic macroeconomy operated smoothly overall, but it also faced the objective challenge of strong supply and weak demand.
Speaker #1: Coupled with factors such as frequent extreme weather events, the overall business environment was under pressure. Total sales through of all channels increased by 0 single-digit year-on-year, which e-commerce sales through achieved mid-single-digit growth.
Speaker #1: Offline sales through increased by 0 single-digit year-on-year, with average offline tech price showing a slight increase. Offline discount deepening by about 3.5 percentage points, ASP down 0 single-digit.
Speaker #1: Sales volume increasing by a mid-single-digit year-on-year. Li Ning's wholesale business, excluding international market and Li Ning Yang business, saw 1.2% year-on-year increase in revenue.
Speaker #1: In the first half, number of POs an increase by 70. Excluding revenue from professional channels, primarily table tennis and badminton, wholesale revenue increased by mid-single-digit, while wholesale sales through remained flat year-on-year.
Speaker #1: The difference between wholesale revenue and sales through was mainly due to weak end-user demand and intensified competition, which led to deeper discounts in wholesale channels year-on-year by mid-single-digit, dragging down sales through performance.
Speaker #1: Looking ahead, we'll invest in our dealer network in the long term, building distribution models strengthening system management continuously, empowering our partners, improving operational efficiency and quality and driving healthy channel growth.
Speaker #1: Direct retail revenue up 3.4% year-on-year. Number of POs down 106. In the challenging environment, we continue to focus on retail operations, strengthening the transformation and expansion.
Speaker #1: Of high-quality stores and closing some inefficient stores to further consolidate efficiency of our directly operated channels and promote recovery of positive contribution from direct retail same-store sales.
Speaker #1: In the first half, our gross margin up 0.9 percentage point to 50.9%, mainly due to following factors. One increased competition in direct retail. Led to deeper discounts, resulting in 0.3 percentage point decrease in good profit margin.
Speaker #1: Two, due to cost optimization, wholesale business increased our gross profit margin by 0.8 percentage point. Three, due to product mix and cost optimization. E-commerce channel increased our gross profit margin by 0.2 percentage point.
Speaker #1: Four, optimization of channel structure and cost in other business units led to a 0.2 percentage point increase in GP margin. The 2.8% revenue increase resulted in a GP margin in resulted in a gross profit increase of 336 million.
Speaker #1: In terms of expense management, we actively develop brand and professional sports resources to strengthen brand and product competitiveness. Building up long-term corporate value. As we continue to optimize our channel structure and channel expansion strategies, variable expenses for direct sales increased by 15 million.
Speaker #1: Expenses related to e-commerce increased by 18 million. Expense related to logistics and new businesses up 35 million. Advertising and marketing expenses increased by 377 million, with expense ratio rising by 2.2 percentage points year-on-year to 11.2%.
Speaker #1: Increase in marketing expenses was mainly due to further increase in investment in Olympic sponsorship and related marketing activities. As well as professional sports contracts, we announced a long-term strategic partnership with Curry and the Curry brand in early June this year.
Speaker #1: The additional costs arising from this will mainly be reflected in the second half of the year. We will continue to invest in new sports resources in the second half of the year.
Speaker #1: Therefore, marketing expenses and the expense ratio in the second half will increase significantly year-on-year and quarter-on-quarter. Reduction in other platform fees was 17 million, mainly due to a one-time impairment of 72 million RMB in goodwill generated from the earlier acquisition of current sports in the same period last year.
Speaker #1: There was no new goodwill impairment this year. Other income and interest decreased by 185 million, mainly due to lower interest rates leading to reduced interest income and reduced government subsidies.
Speaker #1: Income tax decreased by 238 million, with tax rate returning to a reasonable level of 25.8% from 33.3% in the same period last year. Overall, our operating profit margin decreased by 0.4 percentage point from 16.5% in the same period last year to 16.1%.
Speaker #1: Net profit margin up 0.2 percentage point from 11.7% to 11.9%. Profit margin performance was basically in line with expectations. Regarding channel inventory, the inventory turnover month across all channels in the first half was 4 months.
Speaker #1: Inventory level and structure remained healthy. Regarding our inventory, the cost of inventory before provision increased 10% year-on-year in the first half, which was faster than revenue growth.
Speaker #1: This was mainly due to the lower-than-expected retail sales through in Q2, but overall inventory level and inventory age structure remained relatively stable. Good inventory metrics are an important foundation for healthy business and sustainable growth.
Speaker #1: We'll continue to promote refined management, strengthen supply chain responsiveness, and respond flexibly to rapid changes in market and consumer trends through meticulous planning, flexible supply chains, and digital support so as to ensure omnichannel inventory structure and turnover rate remain healthy.
Speaker #1: Trade receivables. Comparing to the 2.8% revenue growth, our pre-provision trade receivables amounted to the same level year-on-year. Accounts receivable turnover days were 16 days, up 2 days.
Speaker #1: Trade receivables were at a reasonable and healthy level. Proportion of trade receivables within 90 days increased from 93% in the same period last year to 95%.
Speaker #1: We'll continue to empower our partners, help channel partners maintain stable operations, and jointly prevent business risk. In terms of operating capital, efficiency, our working capital remains at healthy level.
Speaker #1: Working capital accounted for 7.8% of annualized revenue. Giving us ample resources to drive business growth. In the first half, our company's net cash inflow from operating activities was 954 million, down 1.457 billion year-on-year, mainly due to increased cash outlay and prepayment from new collaboration with Curry.
Speaker #1: Net cash increased by 200 million, compared to same period last year reaching 19.391 billion. Indicating a generally healthy and ample financial position. In the first half, the domestic macroeconomy operated within a reasonable range, achieving a stable start despite multiple pressure.
Speaker #1: However, the consumer market exhibited structural differentiation, with service consumption significantly outpacing goods consumption. Traditional consumer sectors have faced substantial pressure since Q2. The public consumption capacity and willingness need further release.
Speaker #1: Entering the second half, the challenge of strong supply and weak demand continues. Furthermore, the company will further increase our brand and marketing investment in the second half, making our overall expectation for the second half more cautious and pragmatic than at the beginning of the year.
Speaker #1: Currently, retail performance continues to fall short of expectations, with no sign of improvement yet. Therefore, we have adjusted our group's full-year revenue target to low single-digit growth and net profit margin target to a medium to high single-digit level.
Speaker #1: We'll adhere to a steady and pragmatic development strategy, actively positioning ourselves in a complex and ever-changing environment, and continuously strengthen our foundation. We remain firmly confident in the future of the Chinese sportswear market and the core competitiveness of the leaning brand.
Speaker #1: That concludes the financial section. We'll now invite the chairman to introduce the key strategic directions for the first half of the year. Thank you.
Speaker #1: Thank you, Dongsheng. Good morning, everyone. In the first half of 2026, the National Fitness Policy continued to advance. Further consolidating the foundation for sports participation and providing long-term support for the demand for sporting goods at the same time.
Speaker #1: Policies supporting sports consumption continued to improve. And consumption scenarios such as sports events, outdoor sports, and winter sports expanded. Creating a more favorable policy environment for the long term healthy development of the industry.
Speaker #1: The recently released 15th 5-year plan for expanding consumption further improved the policy arrangements for promoting consumption. As the sportswear partner of the Chinese Olympic Committee, our group actively supports the Chinese sports delegation in participating in international sporting events, transforming the momentum of cooperation into brand influence, and continuously boosting brand awareness.
Speaker #1: We'll continue to focus on professional innovation, leverage policy benefits, and comprehensively deepen the leaning experience value across three dimensions: purchase experience, product experience, and sports experience, to consolidate our leading market position and move forward hand in hand with China's sports industry.
Speaker #1: In the first half of the year, we continued to advance our single brand multiple categories and diversify channel strategy. Driven by technological innovation and professional sports resources.
Speaker #1: We made full efforts in six core categories, running basketball, training, badminton, table tennis, and sports casual. While continuing to cultivate emerging tracks such as outdoor sports, tennis, and pickleball, and constantly expanding business opportunities.
Speaker #1: In terms of channels, we're actively improving our channel matrix to reach consumers with diverse needs at multiple levels. And our brand competitiveness and market influence continue to improve.
Speaker #2: In the first half, the group remained firmly committed to professionalism. The total retail sales through across all channels increased by 2% year-on-year. The core business remained stable, training.
Speaker #2: And sports lifestyle continued to improve, driven by functional apparels and women's business, running basketball, experienced some near-term fluctuation. Outdoor and goods label demonstrated encouraging growth potential.
Speaker #2: Looking ahead to the second half, we will remain committed to our core business in professional sports. Expanding our specialized consumer scenario and steadily developing new growth categories to further optimize our business mix.
Speaker #2: Our running category continued to strengthen its professional competitiveness advantage in the first half of 2026, leaning running shoes secured 28 places among China's top 100 main marathon runner, running the first in terms of the brand reputation and marking an important breakthrough.
Speaker #2: Athletes signed under Li Ning's long-term program also set new record in Chinese half marathon and in the fastest marathon debut by a Chinese male runner, the Fidian family continued to help Chinese athletes to achieve more breakthroughs.
Speaker #2: Sales of professional running shoes exceeded 14.8 million pairs. Year-on-year growth and further expand the scale of our business, Fidian 6 Ultra, and Fidian 6 Elite helped the elite runner achieve personal best performance at the high-level events, including Wuxi Marathon.
Speaker #2: Our share among the sub-three-hour marathon runner continued to increase, further reinforcing Li Ning's running leading position in this market. In terms of the product innovation, we launched the Leaning Arc Pro.
Speaker #2: Cushioning running shoes featuring our boom arc technology. It is innovative. And the Arc-shaped structure balances the cushioning and energy return. It further enhanced our professional running shoes portfolio and provides professional choices for runners at different levels.
Speaker #2: Basketball. Basketball category continued to deepen its professional positioning. Resources as we know, we entered in the long-term partnership with Curry and the brand of Curry.
Speaker #2: The famous NBA player and we deepened our strategic cooperation with CBA and expanded the way away the street basketball tournaments nationwide. The then the market influence is consolidated and laid a good foundation for the long-term development.
Speaker #2: And we also untapped the potential expansion area of business in the basketball business. Speaking about the products, we continue to push the boundary of innovation with upgraded Gamma 2.
Speaker #2: Our top-tier performance basketball shoes further strengthen our professional products capacity. Training category continued to use the technological innovation to expand into a wider range of the sports scenario in the first half.
Speaker #2: We introduced the aerospace cooling temperature control technology and leaning cool technology. Shandong pants and Yuedong pants for male and female further strengthened our functional product portfolio, deepened the presence in the more specialized consumer segments.
Speaker #2: I believe there are substantial rooms for growth in the training category. Looking forward, we will continue increase the investment in this category, strengthen our capacity, and build up this category as one of the strengths of our group.
Speaker #2: Sports lifestyle will focus on the women's business while unlocking the potential of Chinese culture. Feeling collection centered around the retro low-profile footwear, made the very substantial growth of the revenue.
Speaker #2: Leverage the content with the police museum and the live stream on this topic, create a high growth product theory. China Leaning also further expand the women offering within Kung Fu collection.
Speaker #2: The women business broadened our overall portfolio and drive the collection sales. We continue unlock the growth of potential. In the first half. We continue to deepen our presence in the professional sports and join the forces with professional sports in terms of the sports events.
Speaker #2: Our strategic partnership with Chinese Olympic Committee serves as a key anchor for our further development. We go together with the China sports delegation in the international events including Milan Winter Olympics and Asian Games.
Speaker #2: At the same time, we have developed multiple categories. Multiple tiers events including the matrix covering marathon, basketball, table tennis, badminton, and tennis, and we also help the athletes competing in the Asian beach sports games.
Speaker #2: The resources cover full spectrum from professional to the mass participation, further strengthening our professional sports credential and international influence. We continue to strengthen our portfolio of elite athletes.
Speaker #2: On one hand, we partnered with with the China shooting diving table tennis facing underwater sports team. Their endorsement helped us to ourselves to build the professional brand image on the other hand, we worked with international superstars like Curry Wade and the swinging Shah and Wang Chuqin.
Speaker #2: Those champions. And we also worked with the new generation athletes including Wang Wenjing, Mao Jingxun, and Zhang Fanbo. Together with them, we build up a three-dimensional or multi-dimensional portfolio of the category and made a good foundation for the professional positioning for the long-term development.
Speaker #2: That is all my introduction for the first half's performance. And I will pass the floor to Qian Wei. He will give us the progress of operation of the company.
Speaker #2: Thanks very much, Chairman. Good morning. I'm Qian Wei from Li Ning. Now, I'm going to go take you through our operational progress in the first half of 2026.
Speaker #2: In the first half, the overall retail environment remained volatile, especially for the second quarter. Against this backdrop, the group maintains a prudential operation and strict risk control.
Speaker #2: In the meantime, we deepened our Olympic marketing and consolidated our professional strengths in the niche area and we continue optimize the cost structure and efficiency.
Speaker #2: As a result, revenue up 2.8% year on year to our MB 15.24 billion profit margin was 11.9, which is in line with the expectation.
Speaker #2: Generally, in the first half, professional products remains a key drivers of our business accounting 57 of the revenue. Running shoes technology continue to evolve the total sales of the professional shoes exceeded 14.8 million pairs.
Speaker #2: And but the discount ratio is continued. So even the discount scale is still leading the industry, but worse the further increasement and optimization to enhance the efficiency.
Speaker #2: In training, we were first on the functional technology refining the products operation expanding the niche area for male and female consumer segments. Retail sales through record will grow steadily.
Speaker #2: Outdoor category will focus on the outdoor lifestyle or other growth group growth growth drivers. And we will use diversity channels like the self marketing to continue expansion of the market share.
Speaker #2: The sales through increased year on year and accounting made a single digit presence. Lifestyle will continue the two themes technology empowerment and culture collaboration.
Speaker #2: We will continue export the opportunity in the women's market. Basketball markets remain under pressure, which performed under the expectation, but leaning attached great importance in this category.
Speaker #2: Still, we will continue to invest in this category. In the first half, we entered the long-term strategic partnership with Curry and Curry brands. We will further enhance leanings authoritative positioning in this category and make a good foundation for further development.
Speaker #2: Product operation efficiency experienced some volatility amid weak consumer environment incident sales through rates for the new products was approximately 70%. Discount for the new products deepened by low single digit.
Speaker #2: Looking forward, we will enhance the micro and precise enhancement improve the discount rate and sales through rate. The inventory all channel inventory to sale ratio was four months and the inventory aging portfolio is still healthy in line with the expectations of the company.
Speaker #2: Again, in the first half, despite group delivering the relatively stable operation result, offline business pressure intensified. So the offline retail sales through increased by single digit year on year.
Speaker #2: And the on average unit selling price declined by low single digit. The group will continue to improve the operating efficiency of those stores at the same time we will enhance the new channels new stores and upgrade the consumer shipping consumer experienced and improve the business conversion.
Speaker #2: Speaking of the channels, we have the two key themes. Channel structure and the optimizing cost. In response to the changes at the regional environments, the low efficiency stores has been reduced and the high quality stores has been upgraded.
Speaker #2: And we continue optimize the rental structure and the commercial cooperation models and enhancing the overall healthy level of all the channels. And I the end of the period, the average area of leaning corporate store was 283 square meters.
Speaker #2: High tier market contribution 60% of the revenue. The percentage ratio in the core business area is 93. That demonstrated our competitiveness in the high tier market.
Speaker #2: And we are working with the high quality commercial resources that helps us to develop our dragon store and other new types of the stores.
Speaker #2: We will continue to upgrade our store image. At the present, we have 1,401 large stores on average the floor area is 401 square meters.
Speaker #2: In the future, we will continue to optimize our channel structures and the format of the stores and then improve the efficiency of all of those channels.
Speaker #2: Speaking of the e-commerce, we have to admit the pressures of this industry and the competition is intensified, but the e-commerce retail sales through increased by middle single digit.
Speaker #2: In terms of the operation, we leverage the major promotion campaign penetrated and attached to the women customers. We coordinated with Olympic and celebrities and connect with those social media influencers as the result, the e-commerce traffic was up 12% conversion rate remained stable discount deepened by low single digit.
Speaker #2: Speaking of the products on e-commerce, we consolidated the core IP and also incubate the new IPs. In this period, failing family performed strongly in the low profile footwear and pants footwears for outdoor category performed quite well.
Speaker #2: That expanded the growth potential magnet merchandise. The efficiency has been improved and the we continue to enhance the depth of the sales of the core IP.
Speaker #2: The online and offline could compensate with each other and the inventory could then be further enhanced on its efficiency. The turnover of the inventory is getting healthier.
Speaker #2: Kids business is continued to be integrated. We on top the potential for the outlets and the key locations. We also precise manage the membership system and consolidated the e-commerce and new retail channel as the result, the efficiency has been improved in this period.
Speaker #2: The number of the kids wear stores is 1,516 and the monthly productivity is 160,000. The growth is at the middle period. Discount improved 0.6 percentage points.
Speaker #2: The unit price was up on single digit. Those are the performance in the first half. Looking ahead to the second half, we will continue to leverage the new products and technology and allocate the resources scientifically.
