Li Ning, the Chinese sportswear maker, experienced a significant decline in shares after its third-quarter retail sales fell short of market expectations. The stock was down 17.55% at HK$24.90 (US$3.18) early Thursday, reaching a low of HK$23.70 during the session, marking its largest percentage drop since January 2013.
Li Ning reported a mid-single-digit percentage increase in retail sales for the third quarter on Wednesday after the market closed. However, this growth rate was lower than what analysts at Citi had anticipated, who were expecting growth in the teens, according to a research note by Xiaopo Wei and Vincent Yang.
During a call with the company's management, Citi analysts discovered that Li Ning's inventory-to-retail sales ratio had increased both year-on-year and quarter-on-quarter, reaching around five times at the end of September. This was higher than the 3.8 times ratio at the end of the second quarter. In response, Li Ning plans to aggressively destock channels in the fourth quarter and the first quarter of next year.
Due to these developments, Li Ning has adjusted its guidance for 2023. The company now expects high single-digit percentage growth for its topline and low-teen percentage growth for its net profit margin, whereas its original forecast had projected mid-teen growth for both. However, Citi analysts maintain their buy rating on Li Ning because the sportswear maker has demonstrated a history of effectively destocking during periods of inventory pressure.
In contrast to its domestic competitors, such as Anta and Topsports, which operate multiple brands, Li Ning has primarily focused on its core Li Ning brand. Citi analysts believe that this strategy will result in lower topline growth for Li Ning in 2024 compared to Anta and Topsports.
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