Li & Fung Ltd. announced plans yesterday to continue acquiring struggling rivals and to expand its business into beauty and healthcare, according to CEO Bruce Rockowitz. Revenue increased by 21.5%, from 2010 to 2011. The company also unveiled higher than expected 2011 net income of $681 million. Analysts had predicted net income of $635 million, on revenue of $20 billion. Overall, revenue rose from $15.9 billion to $20 billion.
Li & Fung has boosted earnings through acquisitions, and by strategic contracting with US retailers such as Wal-Mart, Kohl’s, and Abercrombie and Fitch. They have benefited from the economic downturn by taking advantage of growth in the low-cost market, and are using their strong financial position to consolidate their access to that market, as the recovery gains steam.
Deputy Chairman William Fung plans to focus acquisitions on European companies that are being negatively affected by that region’s continued economic volatility. The chairman sees opportunities in developed regions that are struggling, and considers many companies to be undervalued.
In the United States, Li & Fung has benefited from increasing bullishness on the part of brands. As the US recovery gains steam, consumers are showing greater willingness to shop. This translates into greater confidence on the part of stores when contracting for future goods delivery.
Bloomberg data indicates that the company has been able to spend over $3 billion on acquisitions and takeovers between 2006 and 2011. This consolidation has pushed up profits and improved margins on key products. Their stock price jumped on the news of their unexpected income results, rising by 4.2%.
The acquisition spree at Li & Fung has been good for profits, but has pushed overhead to potentially unsustainable levels, as overhead growth has exceeded margin growth. However, the company predicts that apparel prices will continue to rise, and that they will be able to “grow into” their overhead, according to Rockowitz.