– Gross Profit Margin Reached Approximately 45.1% ; Net Profit Amounted to RMB145 Million
– Constantly revitalizing operating performance; Actively respond to structural adjustments
HONG KONG — The largest branded intimate wear enterprise in China, Cosmo Lady (China) Holdings Company Limited (“Cosmo Lady” or the “Company”, together with its subsidiaries, the “Group”, stock code: 2298), today announced its interim results for the six months ended 30 June 2017 (the “period under review”).
During the period under review, the weak retail sentiment in mainland China and intense market competition, together with the structural adjustments encountered by the intimate wear industry in respect of sales channel diversification, product quality and mix of products, brought more challenges to the industry in the first half of 2017.
Under the challenging circumstance, the Group recorded a revenue of approximately RMB 2,079,229,000 (1H 2016: RMB 2,211,339,000) for the period under review, representing a decrease of approximately 6.0%, which was mainly attributable to the closure of loss-making retail stores in the second half of 2016 and the first half of 2017, coupled with the weak sales performance of sleepwear and loungewear business. Gross profit was RMB 937,195,000 (1H 2016: RMB 1,054,028,000). Gross profit margin dropped slightly to approximately 45.1% (1H 2016: 47.7%). This was primarily due to the increase in purchase prices for packaging raw materials and the step up of promotion efforts for clearing the aged inventories brought down from previous years.
To control the operating expenses, Cosmo Lady has adopted a series of measures since the second half of 2016, including the closure of loss-making retail stores in the second half of 2016 and the first half of 2017, which led to reduction of operating lease rentals and employee benefit expenses in respect of self-managed retail stores, and the adoption of more stringent expense-control measures. Benefitting from these measures, the selling and marketing expenses decreased by about 9.8% to approximately RMB644,757,000 (1H 2016: RMB714,660,000) for the period under review .
Meanwhile, in respect of the bras and underpants businesses, sales recovered from the whole-year decline in 2016 to growth in the first half of 2017. As for the businesses of sleepwear, loungewear and thermal clothes, adjustment was still under way, with gradual improvement expected for the future. Hence, the Group’s profit of approximately RMB144,887,000 in the first half of 2017, though lower than approximately RMB174,019,000 in the first half of 2016 due to the closure of many retail stores and clearance of aged inventories, represents a significant improvement when compared with approximately RMB67,942,000 in the second half of 2016, showing that the operation of the Group began to revive. The Board of the Company has recommended the payment of interim dividend of HK2.58 cents per share (equivalent to RMB 2.20 cents per share, using the exchange rate quoted by the People’s Bank of China on 18 August 2017) for the six months ended 30 June 2017 (six months ended 30 June 2016: Nil).
Mr. Zheng Yaonan, Chairman, Executive Director and Chief Executive Officer of Cosmo Lady, said, “During the first half of 2017, Cosmo Lady’s business was consistently challenged by various economic and industry uncertainties. In response, we managed to improve our operational results through upgrading the management of the Group, reforming the sales and distribution channels, tightening cost controls, innovating new products, reforming supply chain management, exploring overseas markets and potential business partnership. Through our relentless efforts, we remain as the market leader of the China’s intimate wear industry.”
In the first half of 2017, the Group has made great efforts to reform the sales and distribution channels. With regards to the structural adjustments of the industry and the macroeconomic challenges, the Group closed a large number of loss-making retail stores (mainly located in department stores and street). As at 30 June 2017, the Group’s distribution network comprised 7,307 retail stores, out of which 1,295 were self-managed retail stores and 6,012 were franchised retail stores. Apart from carrying out reforms on traditional retail stores, the Group also grabbed the trend to further develop e-commerce and continuously boosted the sales through e-commerce channels.
The Group has implemented further initiatives to tighten cost controls by negotiating for lower retail store rentals, reducing expenditure on less-effective marketing and promotion activities and reducing unnecessary expenses. The amount of capital expenditure declined as the construction work for the first phase of the Tianjin logistics centre had been completed in the first quarter of 2017.
To satisfy the diversified needs of customers and rapid changes of the market, Cosmo Lady enhanced efforts on market research and development of new products, such as new seamless and soft wire bras, and sleepwear products using cationic antiseptic fabric, for getting orders from franchisees and launching to the market in the second half of this year to improve competitiveness.
Furthermore, the Group established a new product management department for strengthening the coordination and communication between sales department and supply chain department, improving the efficiency of research and development, design and logistics, and making rapid responses to market changes. Meanwhile, reforms on supply chain management were implemented through enhancing procurement flexibility to optimize inventory control and procuring some raw materials for OEM suppliers to enhance quality of final products and enjoy benefits from bulk purchases.
On the other hand, the Group made achievements in expanding its business partnership. In May 2017, the Group entered into a cooperation agreement with Kimuratan Corporation, a Japan listed Company, for distributing its infant and children apparels in the mainland China, with a view to broaden the product range of the Group. In addition, the Company issued new shares to a wholly-owned subsidiary of Fosun International Limited (“Fosun”) raising a gross proceed of HK$600,000,000. The Group and Fosun have entered into a strategic cooperation agreement pursuant to which the parties agreed to utilize their respective resources, expertise and experience to explore various possible in-depth cooperation with a view to further promote the brands and development of the Group in the intimate wear industry in China. The Group has also commenced developing Indonesia market with a business partner to explore overseas sales business.
The Group has engaged Rowland Berger Strategy Consultants (Shanghai) Limited, a global leading consulting firm, to assist the Group to prepare and implement its 5-year development plan for the future. The Group will introduce other measures in the second half of the year, including but not limited to greater efforts to open larger new retail stores in appropriate locations and renovate the existing retail stores, working with business partners to develop the markets of Thailand, Vietnam and other Southeast Asia developing countries, and opening discount retail stores in the third and fourth-tier areas in mainland China to secure the opportunities of such markets and clear aged inventories.
Looking ahead, Mr. Zheng concluded, “In spite of the tough market conditions, Cosmo lady will seize the opportunity to increase market share with our strength. The Group will adopt the measures and initiatives mentioned to revitalize our business and also proactively seek suitable merger, acquisition, share subscription and/or cooperation opportunities, with a view to further develop the Group’s existing business and new businesses with synergy effect amid industry adjustments. As such, we believe that we will continue to improve our operating result in the second half of 2017 and maintain our leading position in the industry.”