Li & Fung Ltd., which supplies Wal-Mart Stores Inc., fell the most in more than two years in Hong Kong trading after saying competition for shoppers probably will cause its customers to offer discounts again this year.
The sourcing and delivery provider plunged 7.6 percent last week, the biggest decline in more than two years. Profit fell 18 percent last year as stores had to lower prices more than expected in the third and fourth quarters, Chief Executive Officer Spencer Fung said.
Discounting may be "the new normal," Fung said. "We're seeing greater competition, too -- 2015 will be tough."
Li & Fung, which provides retailers with sourcing and distribution through a network of 15,000 suppliers, said profit declined last year as customers relied on promotional prices to fend off online competitors. Improvements in the U.S. and European economies, which combined account for more than 80 percent of the company's revenue, weren't strong enough to boost profit, Li & Fung said in a statement.
"Consensus is likely to lower earning expectations for 2015-16," Morgan Stanley analysts led by Robby Gu wrote in a report. "Recovering U.S. consumption could be offset by retail discounting."
The Hong Kong-based company restated 2013 earnings to reflect the July 2014 spinoff of its Global Brands Group business, its brand-management and licensing business, it said in a Hong Kong stock exchange statement. The annual results were its first since the spinoff.
Core operating profit fell 18 percent from the restated 2013 figure to $604 million as margins fell and operating costs rose, the company said in a statement.
Sales were $19.3 billion in 2014, 7 percent less than initially reported 2013 sales, and 1 percent more than the restated sales.
Li & Fung's order book is "solid" and its core customers are seeing growth, Fung said. The company also said it expects the U.S. economy and consumer spending to improve in 2015 against the backdrop of a strengthening labor market and lower oil prices.
"We hope that lower oil prices will put more money in the consumers' pockets to improve things somewhat," Fung said.
Oil slumped almost 50 percent last year as U.S. crude inventories and production climb to the highest levels in more than three decades.
Fewer apparel and accessory purchases by U.S. consumers and the sluggish European economy weighed on Li & Fung sales, the company said.
Li & Fung, which gets more than 60 percent of its revenue from the U.S., said shoppers chose bigger ticket items such as cars and electronics over accessories and apparel last year, even as consumer spending rose.
European sales fell about 1 percent, compared with restated 2013 levels.
SundayMonday Business on 03/23/2015