China’s biggest underwear maker Cosmo Lady warns of US$140 million loss as slowing economy hits demand

Enoch Yiu

China’s largest lingerie maker Cosmo Lady (China) Holdings expects to record a loss of not less than 980 million yuan (US$139.79 million) this year.

The loss is due to a “one-off provision” on unsold, out-of-date stock worth between 650 million yuan and 700 million yuan, the company said in a profit warning to the Hong Kong stock exchange on Monday night.

Cosmo Lady’s chairman, Zheng Yaonan, said in the announcement that the slowdown in the Chinese economy had hit demand for its products.

The expected loss compares with a profit after tax of 378 million yuan in 2018, according to the profit warning based on the first 11 months of this year.

The company also had to waive between 310 million yuan and 350 million yuan owed by major customers of the group under a transformation plan, it said.

The transformation plan, led by new chief executive Siu Ka Lok, includes an expansion of e-commerce channels, development in lower-tier cities in mainland China, and the launch of a new advertisement starring mainland actress Guan Xiaotong, known for her roles in films The Left Ear and Shadow.

The closure of a number of loss-making retail stories will also incur costs of 20 million yuan to 30 million yuan, it said.

“In addition, certain business strategies previously adopted by the group, such as its focus on fast-moving, fashionable and sexy intimate wear products, did not meet the diverse needs of our customers. As such, store productivity and profitability are adversely affected leading to weakened financial positions of the group and our franchisees,” Zheng said in the announcement.

The company, founded by Zheng in 1998, is headquartered in Dongguan, the manufacturing centre of south China. It listed on the stock exchange of Hong Kong in 2014.

The company closed on Monday 1.9 per cent lower at HK$1.04. The stocks have dropped 61 per cent this year.

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