HONG KONG — Sourcing giant Li & Fung Ltd. on Thursday posted higher first-half net profit and sales despite a “mixed economic landscape.”
These are the first financial figures Li & Fung has released since it spun off its Global Brands business into a new company last month.
The company said net profits attributable to shareholders grew 16 percent to $111.4 million but excluding losses from discontinued operations — namely the Global Brands business — profits rose 45 percent to $209.6 million. Net profits included a noncash gain of $98 million on the write-back of contingent considerations.
Sales for the six months ended June 30 rose 3 percent to $8.71 billion.
Core operating profit decreased 9 percent to $227.02 million. The company said its strategic additional expenditure on people, infrastructure and service initiatives bit into margins.
“The company now, after the GBG spin-off, is simplified. We’ve refocused back to our core businesses of sourcing and logistics,” said Spencer Fung, group chief executive officer, adding that “2014 is going to be a year of investment. With that we’ll be able to achieve organic growth.
“We’re increasing our costs in terms to set up for new customers, to set up new geographies to improve our infrastructure,” he said during a press conference Thursday.
Fung noted the company is opening a sales office in Myanmar and will be opening new offices in China. The company is also looking to expand its network into Kenya and Ethiopia, he added.
Looking forward, the company noted general weakness in retail sales and uncertain political and macroeconomic conditions. The outlook of key markets such as the U.S. and Europe “continues to be uncertain” and the company expects market conditions to remain “uncertain.” Customers are skewing their buying to later in the year.
Li & Fung said the U.S. continues to be its top export market, representing 60 percent of total turnover. The company said U.S. turnover grew 3.5 percent in the period, mainly driven by growth in home furnishings and kids wear products.
Also reporting Thursday, Global Brands, which made its Hong Kong Stock Exchange listing debut last month, widened its losses for the first six months of the year. The company posted a loss of $98 million, compared to a loss of $49 million the year before. Global Brands blamed the higher losses on an increase in operating expenses associated with the launch of new brands in the second half of 2014 as well as costs linked to the spin-off and stock market listing.
Global Brands recently expanded its brand portfolio to include Cole Haan, Quiksilver, Spyder, Juicy Couture and Aquatalia.
Global Brands’ first-half sales grew 1.4 percent to $1.35 billion.
Speaking at a press conference, Global Brands Group ceo and vice chairman Bruce Rockowitz said he expects profits will “accelerate significantly” in the second half of the year. He noted a “skewing” effect, with sales increasingly clustering toward the end of the year. This would be even more pronounced this year as new brands come on and become accretive in the second half, he added.
Rockowitz said he expects a net profit for the full year. At this point, the order book is already done and dilution caused by retail discounting has been “baked into” projections, he said. Unless “the world falls apart,” the company should see a net profit.
Looking forward, he said the company has been seeing encouraging economic indicators in the U.S. and improving consumer sentiment. Though retail results have been “somewhat mixed,” overall the environment has been much better in the second half of the year. “The U.S. is probably the strongest place right now for retail,” he said. In other parts of the world, Europe has been “very stable” while in China, the market remains volatile but there are signs of a bottoming out.
Like Li & Fung, Global Brands will be focusing on organic growth in the next few years, rather than acquisitions, although Rockowitz left the door open to a few more deals. He said the company is looking to create lifestyle brands.
“We’re a global company, we feel our opportunities are to take a brand and make it global. At the same time we feel that we have expertise in many categories in the fashion space. That’s how you make a brand from singular focus into a lifestyle brand,” Rockowitz said.
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