Chinese sportswear producer Li Ning Co announced Tuesday a huge loss for 2012, its first year in the red since it was listed in Hong Kong in 2004, amid a sluggish domestic economy and an industry downturn.

The company said in an annual report that it suffered a 1.98 billion yuan ($318.8 million) loss in 2012, compared with a profit of 386 million yuan in 2011.

Its stock price dropped 4.09 percent Tuesday to HK$4.46 ($0.57) following the news.

The sportswear firm attributed the greater-than-expected loss to intensified competition in the sector as a result of market saturation and increased pressure to clear inventories due to overexpansion.

"Its huge loss is within expectations as the company offered big discounts to clear its inventories," Wang Qianjin, an analyst at textile industry information provider webtex.cn, told the Global Times Tuesday.

Li Ning attempted to revive its sales channels in December by buying back outdated stock to help channel partners clear inventories, at a cost to the company of up to 1.8 billion yuan.

Its domestic rivals have also reported declining performance for last year.

ANTA Sports Products recorded 1.36 billion yuan in net profit in 2012, down 21.5 percent year-on-year, its first profit decline in five years.

Peak Sport Products Co saw its net profit decline 60.1 percent in 2012 compared with one year earlier.

The whole sportswear sector fell unexpectedly after the 2008 Beijing Olympic Games, resulting in high inventories for firms that bet on a growing post-Olympic market by expanding nationwide, Wei Guangju, a consultant at Adfaith Management Consulting, told the Global Times Tuesday.

As a result, many sportswear firms are cutting their stores.

Li Ning reduced its number of retail stores by 1,821 in 2012, with 6,434 stores remaining nationwide, the company said.

The number of Peak stores decreased by 1,323 in 2012. Anta cut more than 300 stores in 2012 and said it would cut 475 more in 2013, leaving a total of 575 stores.

After years of fast growth, the sportswear sector is suffering from oversupply, and the situation will continue this year, Wang said, noting that some firms will be forced to close in the next two to three years.

A lack of clear brand positioning and differentiated marketing strategies have contributed to Li Ning's poor performance, allowing other sportswear firms to eat away its market share over the past few years, Wei said.

He noted that the company needs to control costs and create a clear brand image if it wants to stand out amid intensified competition.