Yue Yuen Flags 55% Profit Drop Amid Rising Costs

Yue Yuen Industrial Holdings (00551.HK), the world’s largest branded footwear manufacturer, expects its first-quarter net profit to plunge by as much as 55 percent year-over-year, citing a challenging global economy and rising costs.

"The earnings decline mainly reflected negative impacts on its footwear manufacturing business, including a 5.5% YoY drop in manufacturing revenue due to macro uncertainties and tariff sharing," Morgan Stanley said in a research report.

The company anticipates a net profit between $34 million and $37.9 million for the three months ended March 31, a significant drop from the $75.8 million reported in the same period last year. This represents only 23% to 25% of the market's first-half forecast. The profit warning is attributed to higher unit costs in footwear manufacturing, driven by increased headcount, wage growth, and production bottlenecks.

Shares of Yue Yuen fell as much as 11% in Hong Kong trading following the announcement. The significant profit miss highlights the persistent headwinds in the OEM footwear sector, and the company's performance will be a key indicator for the broader manufacturing industry's health.

Morgan Stanley maintained an "Equalweight" rating on the stock with a price target of HKD 17.5, believing that the market has largely anticipated these issues. The bank stated that it continues to view OEM footwear margins as a key risk and supports a cautious stance on the sector for 2026.

The profit warning underscores the challenges facing global manufacturers from economic volatility and persistent cost pressures. Investors will be closely watching the company's full first-quarter results for further details on margin compression and the outlook for the remainder of the year.

This article is for informational purposes only and does not constitute investment advice.