Li & Fung Limited Saw Few Limits to Growth in 2005
By Don Hogsett -- Home Textiles Today, 3/27/2006
Hong Kong — Driven by surging sales, money it earned on what it put in the bank, and a sharp spike in miscellaneous income, Li & Fung Limited, a global sourcing company that sells home fashions and apparel to U.S. retailers and manufacturers, boosted 2005 profits by 20.2%, to $230.9 million U.S. from $192.2 million U.S. the preceding year.
As quotas were eliminated, creating fresh opportunities for off-shore manufacturers, sales at the international sourcing giant soared higher by 17.9%, to $7.2 billion U.S. from $6.1 billion U.S. during 2004.
(All dollar amounts in this story and the accompanying financial table have been converted to U.S. dollars from Hong Kong dollars at the exchange rate in effect on Dec. 31, 2005: $1.00 U.S. equals 7.536 Hong Kong dollars.)
While the company didn't say much about its U.S. operations, it did briefly allude to problems encountered launching two licenses launched in the United States last year, Royal Velvet and Levi's Red Tab Tops, saying: “Despite some start-up teething problems during the initial phase, the brands enjoyed positive response from retailers and consumers.”
It also said it took over the buying functions of two major new accounts, Mervyn's and Ecko.
Lending strength to the bottom line, in addition to the stronger sales, Li & Fung recorded $34.1 million in miscellaneous income, up 18.3% from the prior year; and earned $8.2 million on money it had invested, up 47.2% from $5.6 million in 2004.
The company derived further benefit from a decrease in an already low effective tax rate, which declined to 7.8% of pre-tax earnings from 8.0% the prior year.
Average gross margin widened substantially, by 100 basis points, or one percentage point, to 10.2% from 9.2%. But costs climbed higher in lockstep, offsetting most of the margin improvement, rising by 100 basis points, or one percentage point, to 7.3% of sales from 6.3%.
The United States was far and away the largest market for the global sourcing company in 2005, contributing $4.95 billion in sales, nearly 70% of the company's total sales of $7.2 billion. The second-largest market for the company was Europe, contributing about $1.3 billion in sales.
Soft goods made up slightly more than 68% of the company's sales, with hard goods accounting for the rest.
| 12 months ended 12/31 (x000) | 2005 | 2004 | % change |
| Sales | $7,173,062 | $6,083,668 | 17.9 |
| Oper. income (EBIT) | 205,875 | 171,867 | 19.8 |
| Net income | 230,934a | 192,204a | 20.2 |
| Per share (diluted) | 0.078 | 0.066 | 18.2 |
| Average gross margin | 10.2% | 9.2% | – |
| SG&A expenses | 7.3% | 6.3% | – |
| All amounts have been converted to U.S. dollars from
Hong Kong dollars using the exchange rate in effect on Dec. 31, 2005: 1 U.S.
dollar equals 7.7536 Hong Kong dollars. a. 12-month results include miscellaneous income of $34.1 million, compared with $28.8 million in 2004; an investment loss of $503,000; investment income of $8.2 million, compared with $5.6 million the prior year; a $3.6 million gain on the sale of assets; and $1.2 million in its share of profits from associated companies, compared with $4.2 million the preceding year. In its annual report, Li & Fung combines gross profit and miscellaneous revenues to determine total margin, and uses that number to calculate average gross margin and operating income calculations. Using generally accepted U.S. accounting standards, HTT uses gross profit alone to calculate average gross margin and operating income. |
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