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KUALA LUMPUR: Amid slowing demand in the sports shoe market in the world’s second-largest economy, China-based shoemaker Maxwell International Holdings Bhd, which has been experiencing declining sales and earnings, is strengthening its retail and fashion business.
Chief executive officer Tan Swee Song told reporters after the company’s annual general meeting yesterday that the business — under the affordable luxury segment — would provide another source of revenue while yielding higher margins.
“We have a total of 12 retail branding outlets. This year, we intend to open another eight outlets in major city hubs,” he said.
Maxwell started opening retail branding stores in China, having brought in Spanish and US brands Punto Blanco and Thomas Dean in 2012/2013. Besides these brands, it has also embarked on a “multi-brand” strategy under Gennylee kids.
“The fashion retail business only contributed less than 1% to our earnings last year. However, in the next three years, we hope for this segment to achieve 300 million yuan (RM154.7 million) in annual revenue,” said Tan.
For the first quarter ended March 31, 2014 (1QFY14), Maxwell registered revenue of RM23.8 million, a 57.4% drop from its previous corresponding period. Meanwhile, net profit stood at RM37,000, compared with RM9.2 million.
Tan said while sales are usually lower in the first quarter, the group hopes to see a pick-up in the second half.
However, he cautioned that the group’s performance for the financial year ending Dec 31, 2014 (FY14) would not be as good as the previous year.
Tan explained that the group foresees lower sales and earnings for FY14 compared to last year’s revenue and net profit of RM297.8 million and RM41.7 million, respectively.
Maxwell has also put “on hold” the installation of four new production lines at its new factory in Henan province, China, in view of the decline in the sports shoe market there.
“The shoe industry [in China] is still facing an excess in inventory since 2012, and we foresee lower volume in our sales this year,” Tan said, adding that labour costs in China have also risen, especially in the coastal areas.
However, he said Maxwell has not experienced any excess inventory as it is an original equipment manufacturer and original design manufacturer for a host of third-party brands. As such, it produces based on orders.
The new factory in Henan would have added four new production lines to the four it already has in the Fujian province, bringing total production lines to eight. As such, Maxwell’s intention to double its capacity to 16 million pairs of sports shoes from 8 million, will also be deferred.
“The first phase of the factory premises will be completed in the third quarter this year, and we will rent it out to rake in some rental income from there,” Tan said.
On dividend payouts, he said the group intends to stay prudent amid a challenging environment as it will need funds to expand its fashion outlets.
This article first appeared in The Edge Financial Daily, on June 12, 2014.
