China's 'Consumption Downgrade' Trips Up Anta

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Key Takeaways:Anta said sales of its Fila branded products contracted in the third quarter as increasingly cautious Chinese consumers gravitated towards cheaper productsDespite the Fila slowdown, analysts still expect the company’s revenue to grow 16% in the second half of the year, supported by sales of its other brandsBy Doug YoungWhy purchase pricey foreign sportswear with names like Nike and Fila when you can get the same products from domestic brands like Anta or Li Ning for less?That’s the question shadowing Anta Sports Products Ltd. OTC:ANPDY, whose upscale Fila brand showed signs of slipping in the third quarter, according to the company’s latest quarterly update issued last Thursday. More specifically, Anta reported its sales of Fila products, a Korean-owned brand that it sells in China under a licensing agreement, fell by a “low single digit” amount in the three months to September.The third-quarter decline for Fila is quite significant, as the brand is one of Anta’s most profitable, carrying higher margins than its core Anta brand. The Anta brand accounted for nearly half of the company’s sales in the first half of the year, with Fila not far behind at nearly 40%. The rest, about 14%, comes from other upscale brands like Descent and Kolon Sport.Fila’s third-quarter sales decline contrasted with its performance in the first half of the year, when its revenue rose by 6.8%. Even then, Fila was a relative laggard to Anta’s other two main brand groupings, with revenue from Anta-branded products up 13.5% and “other products” up 41.8% for the six-month period.Investors got a bit spooked by the latest announcement, with Anta shares falling nearly 9% on Monday, the first trading day after the update. Despite that, the stock is still up 20% year-to-date, including a 30% gain in the last month amid a broader rally for Chinese stocks.Anta is the largest, and an investor favorite, among China’s sportswear makers, boasting a relatively high price-to-earnings (P/E) ratio of 18. By comparison, the next largest player, Li Ning OTC:LNNGF trades at a lower 13, while smaller rival 361 Degrees OTC:TSIOF trades at just 8.All of the retailers are coming under pressure these days as Chinese consumers rein in their spending with the country’s slowing economy. Retail sales in China grew just 2.1% in August and 2.7% in July, far slower than rates seen in the past when th...

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