LI & FUNG

From Hong Kong Standard--

Challenging times seen for global sourcing giant

Friday, August 22, 2014

Hong Kong-based Li & Fung (0494), the world's largest supplier of clothes and toys to retailers, said conditions in its key US and Europe markets remain challenging after it reported a decline of 9 percent in first-half core operating profit.
"The outlook of our key markets, the US and Europe, continues to be uncertain," the company said yesterday. "Most customers are delaying order decisions until they get better indications about consumer confidence in the third quarter."The view at billionaire chairman William Fung Kwok-lun's company, which gets about 60 percent of revenue from the United States, follows cuts in full-year profit forecasts at its two top customers Wal-Mart Stores and Target.

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US consumer confidence unexpectedly declined to a nine-month low in August and US households see price gains probably outpacing earnings growth.Core operating profit at Li & Fung declined to US$227 million (HK$1.8 billion) on higher costs. Net income rose 16 percent to US$111.4 million in the six months to June 30 while sales climbed 3 percent to US$8.7 billion.Revenue from the United States increased 3.5 percent, mainly driven by the strong growth in retail sales of key customers in home furniture and kidswear, the company said.In Europe, the crisis with Ukraine has hit foreign travel by Russians and this is starting to impact European retail markets favored by Russian tourists, Li & Fung said. Europe accounts for about 18 percent of its revenue.Shares rose about 1 percent to HK$10.48 before results were announced. Li & Fung last month completed a separation of its brand-management and licensing units. The spunoff company, Global Brands Group (0787), led by former Li & Fung chief executive Bruce Rockowitz, began trading on July 9.It said first-half core operating loss widened to US$63 million in the first half, compared with a US$25 million loss in the same period last year, as it spent more on new labels. Net loss doubled to US$98 million from US$49 million while sales gained 1.4 percent to US$1.35 billion.Global Brands climbed 0.5 percent to close at HK$2.04, up 13 percent from its debut price. BLOOMBERG