Apr 28, 2009
Li & Fung sees more outsourcing deals, US recovery
Apr 28, 2009
By Sui-Lee Wee and Fion Li
HONG KONG, April 28 (Reuters) - Consumer goods exporter Li & Fung Ltd (0494.HK), which manages supply chains for retailers such as Wal-Mart Stores Inc (WMT.N) and Target Corp. (TGT.N), expects to sign more outsourcing deals within months as cash-strapped retailers in the United States look to cut costs in the economic downturn.
Despite recent weaker-than-expected retail sales data from the United States, Li & Fung President Bruce Rockowitz said he was optimistic the current U.S. retail environment was close to a bottom, adding that the company had snapped up more orders from existing customers in the past six weeks.
"What we see is a lot of major retailers who had done the sourcing themselves and have their own offices out here are looking to outsource that," Rockowitz told Reuters in an interview on Tuesday. "In bad environments, we take more and more market share."
Analysts said Li & Fung, which has a network of more than 10,000 suppliers, held appeal for retailers such as Liz Claiborne Inc (LIZ.N) who were looking to shave off fixed costs from sourcing operations.
Investors are cashing in on the company, which does not have any direct listed competitors and is part of the 103-year-old Hong Kong-based Li & Fung Group. Its stock has risen about 50 percent in the year to date, making it the second-best performing stock in the benchmark Hang Sang Index .HSI.
"In this market, retailers are reliant on companies like Li & Fung to help them control costs," said Macquarie analyst Mohan Singh.
Despite this, Li & Fung posted a 41 percent fall in second-half net profit to HK$1.18 billion ($152.3 million) in 2008, lagging analysts' forecasts, as it was hit by weak global markets and one-off costs.
Rockowitz declined to give a profit forecast, but said earnings in 2009 should be higher than the year before.
When asked whether the company could have more bankruptcy provisions for its customers in 2009, Rockowitz said: "It is possible."
Last year, Li & Fung had to write off HK$173 million in claims and bad debts after about 10 customers including department store chain Mervyns and family apparel retailer Goody's sought bankruptcy protection.
In 2009, Li & Fung could sign a similar number of outsourcing deals to the four signed last year, Rockowitz said. The 2008 deals included those with Sanrio (8136.T), Timberland and Mexx.
The outsourcing deals in 2009 could be similar in size to the one the company signed with fashion retailer Liz Claiborne Inc, Rockowitz said, adding that "some will be surprisingly big", although he declined to be more specific.
On February 23, Li & Fung agreed to pay $83 million to become Liz Claiborne's primary sourcing agent for apparel and accessories.
Li & Fung expects to sign an outsourcing deal with loss-making U.S. retailer Talbots Inc (TLB.N) within the next 45 days, Rockowitz said.
If the deal is finalised, it could contribute to earnings by the second half of 2009, he said, but declined to give more details of the agreement, as the company is in negotiations.
On April 13, Talbots said it had signed a letter of intent with Li & Fung to explore the possibility of enlisting the Hong Kong company as its primary sourcing agent. (Additional reporting by Jonathan Gordon)
(Editing by Chris Lewis)
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