Belle Fashion: Back In Vogue, Or Yesterday's Shoes In New Wrapping?

Key Takeaways:

• Belle Fashion has filed for a Hong Kong IPO, aiming to return to market after privatizing in 2017, with plans to raise up to $1 billion
• The company is in good financial shape, with its profit up 92.7% and revenue up 12.8% in the first nine months of its latest fiscal year

By Edith Terry

Will Belle Fashion Group step out in style for its second outing on the Hong Kong IPO runway? The fashion shoe giant certainly hopes so, aiming to raise $500 million to $1 billion from a new listing, according to sources cited in media reports, which could make it the largest Hong Kong IPO since 2020. But Belle’s new listing attempt is already off to a clumsy start, after an initial application to return to the Hong Kong Stock Exchange in March 2022 lapsed without an offering.

That said, the company’s latest results, disclosed in its new listing application last week, look broadly positive. It shows the company has laid the groundwork for its newer, slimmed-down format as a shoe seller focused on e-commerce and smaller stores based in shopping malls, shifting from its previous reliance on department stores.

Belle has never been one to do things in a low-key way. In May 2007, as Belle International, it raised $1.2 billion in its first, heavily oversubscribed public listing, during a time of strong investor appetite for Chinese consumer stocks.

But the enthusiasm ultimately faded, as traditional department store-based footwear companies like Belle, Daphne International (0210.HK) and Zhejiang Red Dragonfly Footwear (603116.SH) failed to adapt to the disruptive advance of e-commerce. Each of them cut stores and headcount after 2015. As its stock languished, Belle decided it needed a major makeover out of the public spotlight.

Ten years after its initial listing, in April 2017, Belle negotiated the Hong Kong Stock Exchange’s largest buyout on record, a management-led deal backed by Chinese private equity giants Hillhouse Capital and CDH Investments, to take the company private for HK$53.1 billion ($6.8 billion).

It reported its first-ever profit decline since its IPO just before its privatization, as the figure for its 2016-2017 fiscal year fell 18.1% to 2.4 billion yuan ($333 million). According to management, it was never Belle’s intention to stay away from the market for long. Instead, privatization gave it some down time to quietly refashion itself with a stronger focus on the new digital economy.

In October 2019, the company spun off its sportswear department as Topsports International(6110.HK) in a Hong Kong listing that raised $1 billion. The remaining Belle, which consists of its fashion shoe and bag businesses, looks quite strong financially.

According to its latest filing, Belle’s revenue for the nine months through last November, the first three quarters of its fiscal year, increased by 12.8% to 16.1 billion yuan, while its profit nearly doubled to 2.1 billion yuan. But revenue for its latest full fiscal year through February 2023 actually fell by 18.3% to 19.2 billion yuan from 23.5 billion yuan the previous year. Its profit declined by an even larger 54% over that period to 1.3 billion yuan from 2.8 billion yuan.

The company blamed the declines on disruptions related to China’s tough pandemic restrictions. Third-party research in its listing document shows the value of China’s soft fashion market, which refers to non-sports footwear, apparel and bags and luggage, fell from 1.7 trillion yuan in 2021 to 1.5 trillion yuan in 2022, before bouncing back to an estimated 1.7 trillion yuan last year.

E-commerce rise

Market data in the report also showed a dramatic increase in online shopping for the soft fashion segment, which rose from 260 billion yuan in 2017 to 495 billion in 2022, translating to annual growth of 11.6%.

In its time out of the public spotlight, Belle has embraced the latest shopping trends, including a greater focus on e-commerce and a shift from department stores to smaller stores in shopping malls, according to the latest IPO document.

Its online sales increased from less than 7% of its total in 2017 to 28% in the nine months through last November. It reduced its store count from about 21,000 in its 2016-2017 fiscal year to 8,631 directly-operated stores in the nine months through last November, making it the largest directly-operated footwear and apparel retail network in China, according to the listing document.

“We have achieved the initial goals of our transformation, which has resulted in our business recovering from the decline at the time of the privatization and we have laid the foundation for continued future growth,” the company said.

So, how credible is Belle’s transformation? First, we’ll take a quick glance at its history. It was founded as a small factory in the 1960s and a shoe store called Belle in 1979 in Hong Kong’s down-market Yau Ma Tei district. Its founder, Deng Yao, also known as Tang Yiu in Cantonese, is a native of the city of Foshan in South China’s Guangdong province, and began as a distributor for Nike and Adidas, before developing his own footwear brands.

Belle was known as the “king of women’s shoes” in the early 2000s, and owned or distributed brands that were extremely popular among Chinese women. Its revenue tripled from 11.7 billion yuan in 2007 to 40 billion yuan in 2015, as it opened new stores at a rapid pace of 1,500 to 2,000 annually, with the number peaking in 2015 at 14,128. But then it began drastic cuts as shopping habits changed, closing 366 stores in its 2016 fiscal year and 378 in the first half of the next year, before it delisted.

Tang Yiu left the company at the time of the buyout at age 87, preparing the way for new blood. At the time, he said he cared most about finding a good partner who could lead Belle’s more than 100,000 employees “to reclaim its glory and give the company a new lease on life.” At a press conference around the time of the delisting, CEO Sheng Baijiao admitted the company had failed to manage the shift to digital commerce.

So, how might Belle be valued in its second time as a public company?

Daphne International currently trades at a price-to-earnings (P/E) ratio of 6.8, while Topsports trades at trades higher at 15, reflecting investor preference for the higher-margin sportswear business. A multiple of around 10, which falls below sportswear valuations but would reflect Belle’s status as a leader in its field, would value the company at about $3.8 billion, based on an annualization of the company’s latest nine-month profit.

While that would be about half its value at the time of the privatization, the company would be notably slimmer after spinning off Topsports, which is currently valued at $4.3 billion, and closing so many stores.

At its height, before the privatization, it had a market cap of $19 billion.

Current chairman and CEO Sheng Fang and CFO Kwok Yiu Tung seem up to the challenge of transforming Belle into a modern footwear company. Kwok is a veteran of China-inspired fashion leader Shanghai Tang and Baroque Japan, as well as Pricewaterhouse Coopers. Now it will be up to investors to decide if the company is indeed a newly transformed beauty, or just the same old shoes in a new box. 

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.