Li & Fung profit falls 20pc amid weak de­mand in US

The Pak Banker - - COMPANIES/BOSS -

Li & Fung Ltd., the world's largest sup­plier of clothes and toys to re­tail­ers, re­ported first-half core op­er­at­ing profit slumped 20 per­cent amid weak de­mand from its cus­tomers in the U.S. and Europe.

Core op­er­at­ing profit fell to $182 mil­lion for the six months ended June from $227 mil­lion a year ear­lier, the com­pany led by bil­lion­aire Chair­man Wil­liam Fung said in a state­ment Thurs­day. That com­pared with the $200 mil­lion av­er­age es­ti­mate of two an­a­lysts sur­veyed by Bloomberg.

"While we ex­pect the macroe­co­nomic en­vi­ron­ment to re­main chal­leng­ing for the rest of the year, our or­der book re­mains solid and in line with our ex­pec­ta­tions," said Chief Ex­ec­u­tive Of­fi­cer Spencer Fung in the state­ment. "I am op­ti­mistic that key prospects will be con­verted into new busi­nesses this year."

Li & Fung gets about 60 per­cent of its rev­enue from the U.S., where con­sumer con­fi­dence fell in July as a stock mar­ket slump amid weak­ness in China may have damped Amer­i­cans' views of the do­mes­tic econ­omy. The rapid de­cline in the euro due to po­lit­i­cal un­cer­tainty around Greece, and the slow­ing Chi­nese econ­omy also af­fected the com­pany's busi­ness, it said Thurs­day.

The Hong Kong-based com­pany, whose cus­tomers in­clude Wal-Mart Stores Inc. and Tar­get Corp., re­ported net in­come rose 33 per­cent to $149 mil­lion, while sales climbed 1 per­cent to $8.63 bil­lion. Lower oil prices weren't able to off­set the gen­eral eco­nomic soft­ness and re­tail sales in the U.S. re­main lack­lus­ter as Amer­i­cans use their sav­ings from lower oil prices partly to pay down their debts and save the money in­stead, the com­pany said.

The re­tail de­mand in the U.S. was largely boosted by heavy pro­mo­tions, hit­ting Li & Fung's cus­tomers and weigh­ing on mar­gins, the com­pany said. It ex­pects cycli­cal weak­ness to re­verse as the euro zone re­solves the un­cer­tainty around Greece, it added. Sales in the U.S were flat, while those in Europe and Asia, which each ac­counted for 16 per­cent of the to­tal, dropped 13 per­cent and grew 8 per­cent, it said. Li & Fung's mar­gin fell 1 per­cent dur­ing the pe­riod.

Wal-Mart, the world's largest re­tailer, said in May it pulled some of its goods sourc­ing busi­ness from Li & Fung, while Kate Spade & Co. will take sourc­ing for ac­ces­sories in- house start­ing spring 2016. Li & Fung's re­la­tion­ship with Wal­Mart is still go­ing "very strong," CEO Spencer Fung said at a brief­ing in Hong Kong af­ter the re­sults were is­sued. The com­pany sees the lo­gis­tics busi­ness as its "high growth area" and is look­ing to ex­pand in coun­tries such as Aus­tralia and In­dia, he added.

The com­pany spun off its li­cens­ing and brand-man­age­ment unit Global Brands Group Hold­ing Ltd. in July 2014 to fo­cus on its core busi­nesses of sourc­ing and man­ag­ing the sup­ply chain of re­tail­ers. China re­mains the largest sourc­ing mar­ket of the com­pany, fol­lowed by Viet­nam and Bangladesh, Li & Fung said. Li & Fung shares fell 4.2 per­cent to HK$5.47 by the close of trad­ing in Hong Kong. The bench­mark Hang Seng In­dex dropped 1.8 per­cent.

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