Le Saunda turns a profit but faces inventory challenge

Shoe retailer Le Saunda is planning to boost its on-sale activity as it battles to reduce its inventory in the wake of falling sales.

But the company has returned to profitability despite tightened margins in the first half year.

The company’s sales fell by 18.2 per cent to RMB376.7 million (US$53.5 million) in the six months to August and gross profit fell 16.9 per cent to RMB241.2 million ($34.3 million). Profit attributable to shareholders was RMB2.4 million ($341,000) compared to a loss in the same period last year of RMB9.6 million ($1.36 million).

Chairman James Ngai said that given the current “gloomy economic conditions” Le Saunda will continue to optimise its distribution network, close down low-profit stores and take “a cautious and prudent approach in business expansion”.

“It is expected that the group will have a relatively high inventory level for a certain period of time. To maintain a good cash flow condition, the group will boost its sales in the second half of the year. As a result, the group’s gross profit margin and net profit margin will be affected,” he said.

In the six months to August, the group achieved a gross profit margin of 64 per cent, representing a 0.9-percentage-point improvement year on year.

That was achieved despite reducing inventory by about 7 per cent, however inventory turnover increased by 58 days to 378 days. Ngai says the group will be focusing on controlling the age of its inventory. As of August 31 about 75 per cent of finished goods had an age of less than one year.