Key points of investment
Incident: The company announced results for the first half of 2022: operating income of 9.86 billion yuan, -24.5% year on year; gross profit fell 26.0% year on year to 3.5 billion yuan, gross profit margin 35.1%; and net profit of the mother fell 97.3% year on year to 17.413 million yuan.
Looking at Q2 alone, revenue fell 24.0% year on year to 4.38 billion yuan; gross profit fell 29.9% year on year to 1.55 billion yuan, gross profit margin 35.4%; operating profit fell 96.7% year on year to 137.94 million yuan; and Guimu's net profit loss was 84.63 million yuan.
Our comments are as follows: Since March, the omni-channel retail environment has been difficult. The company's Q2 revenue decline increased to 24.0% year on year, and revenue in the first half of the year fell 24.5% year on year. Among them, the steady development of private channel pan-micro stores is invaluable.
Offline channel revenue in Q2 was 3.30 billion yuan, or -24.9% year on year; Q2 streamlined stores to 7961, and the decline in same-store sales increased to 24.7%.
Q2 Omni-channel revenue was 1.09 billion yuan, -20.9% year on year. Online B2C business revenue was 990 million yuan, -9.2% year on year. The steady development of the company's private channel Pan-Wei Store is particularly valuable. It is committed to quarterly sales at regular prices. Q2's contribution to direct-run retail sales increased to 16.2%. In the first half of the year, Pan-Micro Store's revenue increased by 94%, and its contribution to offline direct operations was 13.2%. The company aims to increase the share of digital sales to more than 25% in the next three years.
The consumer environment is weak. The company is committed to healthy management, prudently managing discounts, strategically withdrawing from public promotion channels, and focusing on optimizing the sales structure to increase the proportion of new product sales. However, the gross margin base for 21Q2 is high, and 22Q2 gross margin declined year-on-year, but it is still at a steady high level of 35.4%.
Operating leverage efficiency declined, Q2 sales expense ratio+management expense ratio increased 4.0ppt to 37.2%, operating profit margin fell to only 0.3%, down 6.9ppt year on year, and 3.2ppt month-on-month.
The company's inventory is under high pressure. The number of inventory turnover days increased 73 days to 202 days year on year. Excluding the influence of Baowei's acquisition, the number of inventory turnover days was about 180 days, an increase of 51 days over the previous year. The company is paying more attention to optimizing the channel portfolio. Currently, most partner international brands have agreed to provide inventory repurchase support. The company will still put discount control first in the second half of the year, carefully select channels to carry out special inventory clean-up, and focus on promoting omnichannel inventory sharing mechanisms with brands & shopping malls to achieve a leap forward in sharing products across different online platforms.
The company's cooperative brand strategy is more focused. Q2 streamlines trendy brands, returns to the focus on sports brands, and starts cooperation with domestic brands Xtep. It is expected that more cooperative stores will be opened next year to help fill the gaps in Xtep's domestic layout.
Our view: The epidemic is repeated, the consumption recovery process is slow, and the recovery of offline passenger traffic is still some time away. The company's net comprehensive operating income in July was 1.51 billion yuan, -13.5% over the same period last year. We are cautious about the recovery in consumption. We expect the company's net profit of 22/23/24 to be 2.6/45/ 690 million yuan respectively, and -27.4%/+72.9%/+54.8% respectively over the previous year, giving it a “prudent increase in holdings” rating.
Risk warning: repeated epidemics, inventory backlog, terminal sales falling short of expectations, supply chain instability.