CDH Investments Eyes Buyout Of Falling Chinese Retailer Belle

Chinese private equity firm CDH Investments Fund Management Co. is working with the management of Hong Kong-listed Belle International Holdings Ltd. on a potential buyout of the struggling footwear and sports clothing retailer, according to media reports citing insiders.

Shares of Belle International were halted today pending an announcement related to Hong Kong’s takeovers and mergers code, the Shenzhen-based company said in an exchange filing. Belle International currently has a market capitalization of HK$44.45 billion (US$5.72 billion). No financial details of the potential deal are available at this stage.

Founded in 1991, Belle International is China’s biggest women’s footwear retailer, selling shoes under brands including Millie’s and Teenmix in over 20,000 stores across the country. It is also the major agent for Nike, Adidas, Converse and Puma’s sports clothing business in China.

But the company, once called China’s King of Shoes, has seen its revenues and profits decline. During the fourth quarter of the 2016-2017 fiscal year, the company’s shoes business saw same-store-sales drop 6.2% year-on-year. During the three months between June and August last year, Belle International closed down 276 stores in mainland China, averaging three closures everyday.

In a performance forecast, the company said profit would fall as much as 25% for the year ended February 28, 2017, mainly due to the weak performance of the footwear business, while incurring a significant increase of expenses related to a share award scheme.

Analysts say that despite decent product quality, the company’s shoes have not caught up with the changes of consumer tastes. The styles of its shoes are seen as old-fashioned, and young consumers have turned to more stylish and young designs of other brands. Belle International is also a victim of the consumers’ migration to online shopping, as the company struggled to execute a sound e-commerce strategy.

Despite the poor performance, Belle International’s shares have increased about 21% this year, outperforming the 9.3% rise in the benchmark Hang Seng Index, on expectations of a potential transaction.

After the completion of the potential buyout, Beijing-based CDH Investments could help Belle International turn around its business by introducing international management talent and rejuvenate its brand. Analysts have also suggested that Belle International could split its falling shoes business and its growing sports clothing unit.

As the main agent in China for the biggest international sports clothing brands, Belle International has seen strong performance in sports clothing.

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