361 Degrees Reports Operational Highlights for the First Quarter Ended 31 March 2012

2012-04-23 18:07 1172

HONG KONG, April 23, 2012 /PRNewswire-Asia/ -- 361 Degrees International Limited ("361 Degrees" or the "Company", together with its subsidiaries, the "Group"; HKSE stock code: 1361), one of the leading sports brand enterprises in China, is pleased to announce the following key operational highlights for the first quarter ended 31 March 2012:

  • Same store sales growth (SSSG) for Q1 averaged 6.9%
  • Channel inventories stood at 4.1 times the average monthly sales
  • There was a net addition of 85 stores to the franchised network
  • Order book growth for the 2012 Winter Trade Fair was 2%
  • The 361 Degrees Kids 2012 Autumn/Winter closed with a higher order book of 20%

Review of Operations

In this first quarter of the new financial year, retail sales at the Company's franchised network were rather satisfactory, given the continuing difficult market conditions. The quarter was characterized by the early advent of Chinese New Year which triggered fairly brisk sales in the first few weeks of January on the back of strong promotions. Sales were rather quiet after the festive holidays as stores prepare for a change of season. The SSSG for Q1 2012 was 6.9% and based on the latest indications year-to-date, we expect the SSSG to remain around 5% level. Further, the improvement in the first quarter's sales is wholly attributable to the higher price of the current range of products with volumes still remaining low.

The same store sales statistics for this quarter were derived from data downloaded into the Group's e-POS system in respect of about 3,400 stores in 17 major distributorships which had been in operation for more than 24 months. Based on the stock levels at 31 March 2012 of these same stores, the channel inventory (including that of distributors) was estimated to be about 4.1 times the average monthly sales. The Company believes this is a highly satisfactory level and further underlines the fact that stock buy-backs by the Company is neither envisaged nor considered necessary.

Despite the current operating environment, retailers of the Group continue to remain confident of the 361 Degrees brand to open a further 124 stores, whilst closing 39, resulting in a net addition of 85 stores during this quarter. This brings the total franchised network to 7,950 as at the end of March 2012. Most of the store closures were of a size below the current 361 Degrees standard of about 100 sq. metres. At the same time, the tough retail environment created opportunities for retailers to secure good locations at favourable lease terms and the Company will continue to encourage such an expansion strategy. The opportunity was also taken during this relatively quiet period to upgrade a number of stores to the latest generation of the 361 Degrees store format. Whilst the Group would emphasize store productivity over store expansion, access to lower-tier markets is also important as part of an overall development strategy.

The 361 Degrees Kids' business unit, which is run as a separate and independent entity, continues to perform strongly and its network has extended to 1,258 points-of-sales by the end of March 2012, an increase of 101 outlets in this quarter. About half of these outlets are street-level small stores as this format remains the most popular with both customers and retailers for ease of access and high visibility. In late March 2012 the Autumn/Winter Trade Fair closed with an order book that reflected a 20% over that of the previous year, underlining the increasing confidence of retailers as this sub-brand enters into the third year of operations. The Group believes it has a leading position in this segment of the market and hopes this business unit will eventually contribute about 10% of the Group's revenue.

As previously advised, the 2012 Winter Trade Fair concluded successfully in late March, with the order book, in wholesale values, registering a 2% growth from the same fair in the previous year. Although this is significantly lower than that achieved in recent years, the Company regards the result to be satisfactory as major sportswear companies in the industry remain prudent. A further analysis of this order reveals that both volumes and ASPs in Footwear and Apparel were virtually flat.

Review of Financial Highlights

During the first quarter, the Group's revenue was marginally ahead of that of the same period last year, being derived from deliveries of the remaining 2012 Spring/Summer orders, including that which was held as finished goods as at 31 December 2011.

More importantly, the Company has received over RMB800 million from its distributors, effectively meaning that those debts that were more than 90 days in arrears as at 31 December 2011 have all been fully recovered. The Company's management has embarked on a plan to ensure that its overdue receivables would not exceed 90 days in the future and a meaningful improvement is envisaged by the end of this financial year.

In order to bolster its working capital at a time when monetary conditions remain tight in China, the Company successfully launched a convertible bond of US$150million in March with a coupon rate of 4.5% over a 5-year tenor. The proceeds were received in early April.

Outlook for The Rest of The Year

The Group believes that the excessive inventories in the industry have eased considerably by the end of this first quarter although any recovery this year is likely to be very modest. Whilst competition will remain intense, the 361 Degrees brand is enduring in strength and has received strong traction of late as a result of extensive media coverage from collaboration with CCTV 5 and sponsorships of major sporting events. The Central Government's policy to promote sports as a part of a larger effort to encourage domestic consumption will augur well for the industry in the medium term. Meanwhile, the Management of the Company is redoubling its efforts to strengthen its internal processes and systems so that when business conditions improve, there will be a quicker acceleration of results.

About 361 Degrees International Limited

361 Degrees International Limited is one of the leading sports brand enterprises in China, possessing brand marketing, research and development, design, manufacturing, distribution and retail capabilities. The Group's products include footwear, apparel, accessories and equipment for sport and leisure uses. The Group has established an extensive supply chain management system through proprietary and sub-contracted manufacturing operations; and an exclusive distribution and retail network in China through distribution via authorized distributors.

For further information, please contact:

Mr. Y F Chen
Vice-President, Investor Relations
361 Degrees International Limited

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Source: 361 Degrees International Limited