In a filing to the Hong Kong stock exchange, the company said it expected to “record an approximate break-even in terms of profit and loss attributable to the equity holders” in the year that ended December 31, “principally due to an increase in both the sales revenue and gross profit of the group and a decrease in expense ratio”.
Li Ning has spent most of the past three years trying to restructure its business, clearing out inventory built up by third-party distributors, closing thousands of underperforming stores and increasing the percentage of direct-run outlets.
The brand, which has struggled to shake off the image of a producer of cheap sports shoes that are little more than western knock-offs, announced a net loss of Rmb781m ($119m) for 2014, its third consecutive annual loss. But it reported signs at that time of a recovery in sales growth.
The company on Wednesday attributed the improved performance to enhanced direct retail operating efficiency and long-term relationships with channel partners, and expanded ecommerce business.
“It looks like their efforts to shut down unprofitable stores and focus on inventory with better sales and better margins are finally paying off,” said Ben Cavender of China Market Research in Shanghai.
A recovery in the broader China sportswear market also appears to have played a role, retail analysts said.
Ma Gang, a China-based footwear and apparel analyst, noted that “the whole industry is now on the upturn . . . and Li Ning has done a lot of work [to stem its losses].” But “whether the company will start to make profit now depends on its future strategy, including whether it keeps opening more stores,” he added.
Chen Ke, Shanghai-based retail partner at Roland Berger, projects that the Chinese sportswear market will “maintain a 10 per cent growth rate in the next three years” while Li Ning itself “has improved efficiency after a shift . . . to opening more of its own stores”.
But Mr Cavender pointed out that Li Ning “is still lagging behind some of their major domestic and international competitors and it’s unclear whether they have enough exciting products in place to make a strong run in 2016”.
Anta, Li Ning’s top domestic sportswear rival, said net profit for the first half of 2015 rose 20 per cent from the same period a year earlier.
Shares in Li Ning closed up nearly 7 per cent on Wednesday in Hong Kong, in a broader market down almost 1 per cent.