Li Ning's revenue dropped 28% in 1H

But here's some good news.

According to CCB International, Li Ning posted a 1H13 loss of RMB186m. While the 28% YoY decline in revenue is significant, CCB International notes that 1H13 revenue was largely flat HoH. This is a good sign that Li Ning’s sell-in reduction exercise is coming to an end to provide a foundation for a recovery in sell-in in 2H13. 

Here's more:

Most importantly, we believe the writeback of A/R and inventory provisions is indicative of an improvement in channel inventory (now below 7x versus the peak at 9x) and distributor/retailers’financial health, and hence limited likelihood of future provisions.

One step closer to retail. Of Li Ning’s various initiatives, we are most impressed with its downsizing efforts and its idea to pursue an uncommon retail-driven business model where prescriptive and replenishment orders are expected to account for over 50% of requirements.

In our view, these are essential to ensure the long-term profitability and competitiveness of its retail network in the market.

Li Ning’s store number has already declined 27% from its peak to just over 6,000 with modest room for more closures. In 1H13, direct retail reached a new high of 27% in the sales of the Li Ning brand (1H12: 19%). The use of direct retailing is set to rise further.