361 Degrees turnaround

Chinese sports brand 361 Degrees International has defied China’s sportswear glut and posted a nine per cent increase in sales and a 105.6 per cent increase in profit for 2014.

361 Degrees is one of the leading sports brand enterprises in China, designing, manufacturing, distributing and retailing footwear, apparel, accessories and equipment for sport and leisure through 7319 franchised stores and authorised distributors across China.

Group turnover was subdued because the bulk of orders were taken in the previous year when the prevailing sentiment remained weak in the face of the industry’s inventory glut.. The company said the rise in operating profit was primarily due to a fully justifiable write-back in impairment provision as a result of a vastly-improved control on trade debtors, “and a generally well-balanced oversight on most of the key operational issues”.

“There was a general improvement in volumes for all the product groups and despite a reduction in wholesale prices which became effective in the year, average selling prices were on an upward trend. This augurs well for the future as product differentiation and price segmentation become increasingly important in what is still a highly competitive industry.”

Gross profit margin improved by 140 basis points to 40.9 per cent, as the group juggled between in-house production and OEM sourcing for the best results and higher productivity in the in-house apparel unit also contributing.

“As there is still an over-capacity in the OEM manufacturing sector, there are good reasons to believe that this level of profitability can still be maintained in the foreseeable future,” the company said.

The company’s 361° Kids unit reported a 20.7 per cent increase in revenue, buoyed by an improvement in both volume and average selling prices, as it sets a new benchmark in the industry with the launch of ‘Smart’ shoes.

Over the last three years when the industry has been in the doldrums with the overhang of inventories resulting in severe discounting, the Group has quietly implemented a rack subsidy scheme to help retailers improve the store image and shopping experience. In 2014, the Group accelerated on this promotion, bringing a further 2125 stores into full compliance with the latest corporate and operational standards, which resulted in a charge of RMB214.1 million, up 25.6 per cent from the previous year.

The company achieved a substantial improvement in credit control: as at December 31, over 62 per cent of the trade debtors are within 90 days (2013: 49 per cent) with none over 180 days (2013: RMB192 million).

Almost all of the 7319 franchised stores are now re-fitted with a new rack display merchandising system and many of these stores operate as 3-in-1 outlets, offering the full complement of the group’s lines: 361° Sport, 361° Kids and Innofashion, the group’s casual sub-brand.

“Foot traffic has reportedly been much better in such stores and with the adjustment in the product pricing mechanism, many retailers could now operate profitably.”

Looking forwards, the group said it is confident that despite a slowing economy in China, the fundamentals of the sportswear industry have never been better, “particularly as the Central Government is resolute in its reforms to encourage a fitter and healthier society and to drive domestic consumption as an engine for sustainable growth”.

“With a strong order book on hand for 2015, and a good pipeline of value-for-money products, the board is confident of another strong year of earnings.”