Nike, Adidas, Asics and New Balance’s largest shoe manufacturer reports a sharp margin hit despite steady revenue, while retail arm Pou Sheng posts a rare bright spot
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HONG KONG — Yue Yuen Industrial (Holdings) Limited, the world’s largest contract manufacturer of athletic and outdoor footwear, reported a 57.9% drop in first-half net profit as volatile order patterns, rising labor costs and uneven factory utilization weighed on its core manufacturing business.
The Hong Kong-listed group, whose client roster includes Nike, Adidas, Asics, New Balance and Salomon, posted profit attributable to owners of US$72.0 million for the six months ended June 30, 2026, down from US$171.2 million a year earlier. Revenue slipped a more modest 2.2% to US$3.97 billion. Recurring profit — stripping out one-off items — fell 53.3% to US$76.0 million. Basic earnings per share came in at 4.49 US cents, versus 10.67 US cents in the prior-year period. The board declared an unchanged interim dividend of HK$0.40 per share.
Manufacturing Bears the Brunt
The manufacturing division, which still generates roughly two-thirds of group revenue, shipped 118.6 million pairs of shoes in the period, down 6.4% year-over-year, even as average selling price rose 1.6% to US$20.95 a pair. Manufacturing revenue fell 4.7% to US$2.67 billion, and the segment’s gross margin contracted 3.4 percentage points to 14.3%, dragging overall group gross margin down to 20.7% from 22.6%.
Management pointed to several compounding pressures: brand customers placing more cautious, volatile orders amid tariff and inflation uncertainty; overlapping holiday shutdowns across its three main production hubs early in the year that disrupted scheduling; and rising wages alongside a headcount increase tied to the continued ramp-up of newer factories, notably in Indonesia and a new base under construction in India. Indonesia and Vietnam remained the group’s two largest production locations by volume, accounting for 52% and 33% of shipments respectively, with mainland China at 9%.
Regional export data cited by the company underscored the wider trade headwinds: Vietnamese footwear exports grew just 0.5% year-over-year in the first half to US$12.0 billion, Indonesian exports rose 4.9% to US$3.95 billion, while Chinese footwear exports fell 8.6% to US$19.8 billion.
Pou Sheng Retail Arm Outperforms
In contrast to the manufacturing slowdown, Yue Yuen’s Greater China retail subsidiary, Pou Sheng International, delivered a rare improvement. Revenue attributed to Pou Sheng rose 3.5% in US dollar terms to US$1.31 billion (down 2.1% in RMB terms, its reporting currency, to RMB8.96 billion), while profit attributable to Pou Sheng’s owners climbed 29.9% to RMB243.7 million. Gross margin improved 0.4 points to 33.9%, which the company attributed to tighter inventory-aging management and disciplined discounting.
Pou Sheng continued to rationalize its store network, ending the period with 3,110 directly operated stores in Greater China, a net reduction of 200 locations since year-end 2025, as part of an ongoing strategy to prioritize store-level efficiency over footprint expansion.
Balance Sheet and Outlook
The group’s net cash position swung to a net borrowing position of US$224.3 million as of June 30, 2026, from net cash of US$62.5 million at the end of 2025, with total bank borrowings rising to US$1.04 billion. Gearing (bank borrowings to total equity) increased to 20.6% from 15.4%. Capital expenditure for the half totaled US$129.3 million, down from US$146.0 million a year earlier, with the bulk directed toward manufacturing capacity in Indonesia and the new India facility.
Looking ahead, Yue Yuen struck a cautious tone, citing persistent macroeconomic uncertainty, tariff risk and unresolved visibility on near-term order demand. The group said it would lean further into capacity diversification across Indonesia and India, continue rolling out its SAP ERP system and AI-assisted production-allocation tools, and maintain strict cost discipline to protect manufacturing profitability through the second half.
Headcount across the group stood at approximately 293,000 as of June 30, 2026, roughly flat year-over-year, with manufacturing headcount up 1.0% to about 275,700 and Pou Sheng’s retail staff down 9.9% to around 17,300, reflecting the store closures.