Li Ning Co. (2331) surged in Hong Kong trading after its chief executive officer stepped down and private-equity firm TPG Capital said it could boost investment in the sportswear retailer if needed.
Founder and Olympic gymnast Li Ning will help run the company while it searches for a new CEO to replace Zhang Zhi Yong, according to a statement from the company. Kim Jin Goon, a partner at TPG Capital that invested in the retailer this year, will be executive vice chairman.
“We will make that decision when the company needs capital,” Kim said today at a press conference in Hong Kong when asked about TPG’s investment. “If it makes sense for the company and TPG, we’ll be very happy to do that.”
Li Ning’s profit plunged 65 percent last year amid escalating competition from Nike Inc. (NKE:US), Adidas AG (ADS), and Anta Sports Products Ltd. (2020) The company said in January that it would sell 750 million yuan ($118 million) of convertible bonds to TPG Capital and Singapore’s sovereign fund to raise money for more stores and product development.
The stock rose 7.3 percent to HK$5.03, the most since Feb. 9, at the close of Hong Kong trading. It is down 18.5 percent this year compared with a 7.5 percent gain for the benchmark Hang Seng Index.
“Investors have expectations that with the resignation of the former CEO, the company can do better next year,” said Jerry Peng, an analyst at Guotai Junan Securities Co. in Shenzhen. “TPG has quite strong retail experience and now they’re playing a bigger role, so the market has high expectations for next year.”
The retailer said it will seek to improve results through marketing investments, and clearing its inventory. Li Ning won’t rule out raising capital although it currently doesn’t have plans to do so, Kim said.
“The sportswear industry in China has suffered from over expansion,” Kim said. “Growth in supply exceeded the pace in demand, leading to a short-term saturation.”
Adidas’s Greater China sales jumped 23 percent to 1.2 billion euros ($1.5 billion) in 2011, according to data compiled by Bloomberg. Nike’s Greater China revenue climbed 23 percent to $2.5 billion in the year ended May.
“I think Li Ning’s brand positioning is not quite clear,” said Peng. “Li Ning is actually trying to increase retail prices to be close to Nike and Adidas in the past several years, but domestic customers still prefer international brands if the price is similar.”
Hong Kong-traded Anta reported a 20 percent sales increase in 2011 even as Li Ning’s sales dropped 5.8 percent to 8.9 billion yuan.
Li Ning’s profit for the year ended Dec. 31 fell to 386 million yuan from 1.1 billion yuan a year earlier. Profit will have a “rather substantial decline” this year amid higher marketing expenses and an impairment loss on a brand licensing business, the company said in a June statement.
Founder Li Ning was the final torchbearer at the opening ceremony of the 2008 Beijing Olympic Games. He won three gold, two silver and one bronze medals in the 23rd Los Angeles Olympic Games in 1984, and founded the company after retiring from athletics, according to the company’s annual report.
Zhang will continue as an executive director of the company and will act as the chief adviser to the executive committee of the board to “ensure a smooth transition” until a replacement is found, the company said.
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