FAST NEWS: Topsports’ profit sags on weak consumer spending

The Latest: Topsports International Holdings Ltd. (6110.HK), a major distributor for foreign sports brands in China, said on Tuesday it expects its net profit to drop 35% year-on-year in the first half of its fiscal year through August from the 1.34 billion yuan ($188 million) profit it reported in the year-ago period.

Looking Up: The ratio of sales from the company’s online business increased year-on-year in the latest six-month period due to deeper online discounts compared to offline discount rates.

Take Note: The falling profit was caused by weak consumer sentiment that affected the company’s sales. That slowdown has had a bigger impact on the company’s offline store traffic, leading to higher selling and distribution and general and administrative expense ratios as a percent of total revenue.

Digging Deeper: Topsports is the Chinese distributor for Nike (NKE.US) and Adidas (ADS.DE), with 85% of its sales coming from the two global brands. The company took a hit several years ago after some international brands stopped using cotton from China’s Xinjiang region, leading some Chinese consumers to boycott foreign apparel brands in favor of domestic rivals. Sales of Nike and Adidas products have also come under pressure more recently due to the country’s slowing economy and weakening consumer sentiment.

Market Reaction: Topsport’s shares plunged on Wednesday to close down 16.2% at HK$2.23 by the midday break, a 52-week low.

Translation by A. Au

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