August 23, 2025: LI NING Company Limited (2331.HK) announced its 2025 interim results, with the Chinese sportswear giant continuing last year's trend of modest revenue growth but significant profit decline.

The company's revenue for the first half increased 3.3% to 14.617 billion yuan, while net profit fell 11.0% to 1.737 billion yuan, with net profit margin dropping sharply by 190 basis points to 11.7%.

Revenue growth was primarily driven by footwear business revenue increasing 4.9%, while apparel sales declined 3.4%.

The group attributed the decline in direct-to-consumer (DTC) channel revenue and gross margin to intense competition, deeper discounting, and store adjustments in the direct sales channel during the first half.

DTC revenue declined 4% to 3.234 billion yuan during the reporting period, with its proportion dropping 160 basis points to 22.8%. The number of stores decreased significantly by 217 year-on-year to 1,278. Gross margin fell 20 basis points during the period, impacting the group's overall gross margin by 40 basis points to 50%.

Wholesale channel revenue increased 4.4% year-on-year to 6.683 billion yuan, while e-commerce revenue grew 7.4% to 4.3 billion yuan, with LI NING brand e-commerce penetration rate improving 110 basis points to 29.0%.

By category, basketball business sales continued to underperform, with retail sales declining 20% year-on-year and its proportion dropping from 20% to 17%. Running shoes continued to drive growth with retail sales increasing 15% and proportion rising from 30% to 34%. Sports lifestyle business retail sales fell 7% with a 29% proportion.

Due to Olympic sponsorship impact, the company's advertising and marketing expense ratio increased 30 basis points to 9.0% in the first half, which management indicated would improve in the second half. Staff expense ratio decreased 80 basis points to 7.7%.

Chief Financial Officer Zhao Dongsheng stated at the earnings conference that social consumer goods retail growth slowed starting in June, indicating the consumption environment remains sluggish, with continued challenges expected in the second half. The group maintains its full-year targets of flat revenue growth year-on-year, high single-digit net profit margin, and 50% gross margin.

Co-Chief Executive Officer Qian Wei noted that July and August business reflected greater market challenges than expected, with increasingly fierce competition, though consumer support for sports has not significantly weakened, and competition among different brands is not necessarily negative.

He also expressed expectations for LI NING to gain market share through enhanced brand, product, and channel competitiveness with increased resource investment in marketing channels. The group will continue structural adjustments and optimize offline channels. He emphasized the company has no inventory pressure, but if sales pressure cannot be resolved leading to mismatched sales and inventory, discounts would be prioritized to clear inventory, and if gross margin is affected, further cost reduction and efficiency improvement would follow.

During the reporting period, LI NING's inventory turnover improved slightly by 1 day to 61 days, with inventory growing at low single digits year-on-year. Among channel inventory, stock aged under 12 months accounted for 94%, with under 6 months at 82%. Company inventory comprised 77% under 6 months and 92% under 12 months.

Despite profit decline, LI NING's first-half performance exceeded market expectations, with the company's stock surging nearly 9% after results.

Credit Lyonnais issued a report noting LI NING's interim operating profit margin of 16.5% declined slightly by 20 basis points, but benefited from cost control that beat market expectations by 390 basis points. Revenue performance, while weaker than peers, slightly exceeded expectations and is expected to provide stock price support. The firm assigned a "Hold" rating with a target price of HK$16.

Morgan Stanley also issued a report indicating LI NING's interim operating profit was 21% higher than the firm's expectations. While risks of weak demand and intensified competition are rising, LI NING's current business condition is healthy. The firm stated that if sales recovery reaches mid-to-high single-digit growth, profit margins are expected to rise significantly, assigning an "Overweight" rating with a target price of HK$22.