(Yicai Global) Feb. 7 -- Red Dragonfly Footwear, a major Chinese maker of leather shoes, said it expects to have swung into the red last year for the first time since going public in 2015.

Red Dragonfly is likely to have lost between CNY25 million and CNY37.5 million (USD3.7 million and USD5.5 million) in the year ended Dec. 31, the Wenzhou-based company said in a financial forecast, after earnings fell for a fifth straight year.

Sales channel changes were the main reason for the annual loss. At the time of its establishment in 1995, brand-franchise stores were the dominant channel for shoe and appeal firms to make headway. But with the growing reliance on online stores and shopping centers, traditional channels are becoming less popular, with sidewalk shops almost gone from the market.

Since 2015, Red Dragonfly has been cutting costs by reducing the number of stores it operates directly. In 2021, it pared them to 261 from 445, while the total number of brick-and-mortar shops selling its wares fell to 3,100 from about 4,100.

Red Dragonfly let go a third of its workforce in the same period, with staff numbers sinking to 4,050 from about 5,915. Annual production also declined, falling to to 400 million pairs of shoes in 2020 from 700 million between 2015 and 2019, with 2021's output still undisclosed.

The firm’s net profit margin has also been narrowing, down to around 1 percent to 2 percent from between 8 percent to 11 percent in 2018.

Despite revenue shrinking, sales and administrative expenses remained stable, with the former at 19 percent and the latter at 12 percent of total revenue in 2021, both at a higher share than in 2015.

Red Dragonfly has converted some of its franchise stores to directly operated outlets because its gross profit margin from such shops is about 50 percent, while that of franchises is around 35 percent. To improve profitability, the firm plans to increase the number of stores it operates directly. It is also expanding its store network, opening 54 of its 120 new directly operated stores in shopping centers in 2021.

Share of Red Dragonfly [SHA: 603116] closed up 0.8 percent at CNY5.31 (78 US cents) today. 

Editors: Shi Yi, Martin Kadiev