Revenue began to decline in 13Q4. Lower gross margin and higher tax rates increased pressure on performance. In 2013, the company achieved operating income of 1,259 billion yuan, an increase of 6.76%; net profit was 71 million yuan, a decrease of 48.95%; EPS was 0.22 yuan, and 10 payments were 0.4 yuan. Net profit was lower than the revenue growth rate mainly due to a sharp decline in gross margin, an increase in financial expenses, and an increase in income tax rates (not qualified as a high-tech enterprise in '13). Net profit after deducting non-current profit fell by 50.09%, which was lower than the net profit growth rate, mainly due to non-current asset disposal profit and loss of 12.78 million yuan. Revenue fell 9.4% and net profit fell 52% in 13Q4. The large decline in Q4 net profit was mainly due to a sharp decline in gross margin; Q4 3 rates were reduced by 1.5% PCT (sales, management, and financial expense rates -2.5, +0.2, and +0.8 PCT, respectively). 14Q1 revenue and net profit were 2.36 million yuan and 4.48 million yuan, down 22% and 78.6%, respectively, and EPS was 0.01 yuan. Net profit was lower than revenue growth, mainly due to lower gross margin and higher income tax rates. Net profit after deducting non-profit fell by 68.61%, which was higher than net profit mainly because the 14Q1 government subsidy was only 50,000, while 13Q1 was 8.02 million. 13Q1-14Q1 revenue was +14.4%, +10%, +21.7%, -9.4%, and -22%, respectively. As can be seen, there was a decline from the 13Q4 revenue side, and the decline in 14Q1 increased; net profit was -49%, -5.7%, -115.9%, -52%, and -78.6%, respectively. The share of exports has increased, and the decline in group buying business has clearly affected group buying and retail sales (1) Judging from the revenue structure, the increase in revenue in 2013 mainly came from exports. Exports increased by 52%, domestic sales fell 3%, and the share of exports increased from 18% to 26%. (2) In terms of domestic sales, group purchases are estimated to be 310 million, a decrease of 18%; in terms of brands, the number of company channels in 2013 was 697 (178 direct sales, 519 franchisees), and the extension growth rate was 7%, mainly due to direct business expansion (30 new direct businesses, 20% increase, 14 new franchisees, an increase of 3%), and the same store fell 9% (including the impact of the decline in group purchases in terminal stores). E-commerce has just started in '13, and its share of revenue is very small. The company implements a regional marketing model, dividing the existing market into 11 regions and terminal stores into four categories, and providing targeted services, delivery, support, etc. Furthermore, the company renovated more than 140 stores in '13 and more than 100 and 180 respectively in '11 and '12. The renovated stores are conducive to improving store efficiency and will contribute in the future; we estimate that the sales of the renovated stores will increase by about 18%. (3) In terms of volume prices, sales volume increased by 8.38% and launch prices decreased by 1.49%, mainly due to an increase in the share of sales of seasonal goods. Gross margin continued to decline, inventory declined, and the structure was basically reasonable. Gross profit margin decreased by 4.24 PCT to 37.35% in 2013, mainly due to increased discounts on domestic sales and an increase in the share of export revenue with low gross profit, which lowered the gross profit margin. The gross margins for 13Q1-13Q3 were 38.62% (-7.1PCT), 43.92% (+2.1 PCT), 32.63% (-2.7 PCT), and 32.63% (-2.7 PCT), Q4 minus 8.2 PCT to 34.12%, and 14Q1 minus 2.7 PCT to 35.95%, respectively. Expense ratio: The sales expense ratio increased by 0.08 PCT to 22.07%, mainly due to increased expenses such as depreciation for the company's marketing network terminal stores (+38%), sales staff salaries (+4%), and advertising (+82%). Management fee rate - 0.26 PCT to 4.66%. The financial expense ratio increased by 1.76 PCT to 2.22%, mainly due to increased interest expenses due to the issuance of corporate bonds in 2013. Since it did not qualify as a high-tech enterprise in 13 years, the income tax rate increased by 5.5 PCT. The 14Q1 sales expense ratio increased by 1.34 PCT to 24.47%, the management expense ratio increased by 0.62 PCT to 6.11%, and the financial expense ratio increased and decreased by 1.45 PCT to 1.03%. Other financial indicators: 1) The 2013 inventory fell 7% from the beginning of the period to 375 million, mainly because the company strengthened market-based production and controlled the scale of procurement. The 14Q1 inventory fell 7.5% from the beginning of the year to $347 million. The company coordinates product management, changing the previous ordering model where directly-managed stores fought separately, and implemented a model combining unified product distribution with independent ordering. The distribution of goods by franchisees has changed from simple, extensive product distribution to detailed, planned, and marketable product distribution, so that inventory is gradually controlled. The company's current inventory structure is basically reasonable: off-season (12 years and before) accounts for about 34%, preparation accounts for about 2%, and current quarter (13-14 years) accounts for about 64%. It is estimated that the sell-out rate for fall and winter products is 74%. 2) Accounts receivable in '13 increased 63% from the beginning of the year to 488 million, mainly due to the company's relaxation of franchise store credit terms during the peak sales season. 14Q1 accounts receivable increased 5% to $514 million. 3) Asset impairment losses increased 22% to 15.29 million yuan in 2013, mainly due to an increase in bad debt preparations (an increase of 13.56 million yuan in bad debt preparations and an increase of 1.73 million yuan in preparations for falling inventory prices). 14Q1 decreased 23% to 1.64 million yuan. 4) Non-operating income in 2013 fell 32% year on year to 14.05 million yuan, mainly due to the large number of government subsidies received in 2012. Non-operating income fell by 98.42% in 14Q1, mainly because 13Q1 received a lot of government subsidies. 5) Net operating cash flow in 2013 increased by 490.65% to 452.6 billion yuan, mainly due to a decrease in payment for purchases. The significant difference between operating cash flow and net profit is mainly due to a slowdown in sales payback and an increase in tax payments. Net operating cash flow decreased by 193.94% in 14Q1, mainly due to a slowdown in revenue growth and a corresponding decrease in sales payback. Launch high-end customization as the focus of future development and cultivate new profit growth points In 2013, the company launched Planeo's high-end custom brand. In terms of suits, internationally renowned suppliers such as Zegna, Domey, Vidale, Nanshan, and Ruyi were selected, and internationally renowned suppliers such as Concorini, Monty, Dixiang, and Lutai were used for shirts; in order to ensure that the clothes fit the human body to the greatest extent possible, only natural and environmentally friendly hemp linings, horsetail linings, cotton linings, etc. were used. The process used was also the most technologically complex in the world. Full hemp lining process. In less than three months after the launch of the operation plan, Planeo's high-end customization was widely recognized by specialty stores and customers, accumulating valuable experience for the company's personalized customization business. Planeo's high-end customization sales began in December 2013, and sales from 13.12 to 14.2 were about 3.87 million yuan, and gross margin was around 84%. In 2014, the company will strengthen the promotion of personalized customization business and launch a wedding series and Shinur customization business on the basis of Planio Haute Couture. Furthermore, the company launched a new Runer women's clothing brand in the fall and winter of '13, targeting women's business wear and fashion clothing. It accounts for a very small proportion, and there is no separate store. Previously, the company also had a womenswear business, and its gross margin was high, at around 45%, which was higher than the company's gross profit margin for menswear; however, until now, the company had been relatively cautious about developing the women's clothing category, and growth was not high, accounting for about 10% of revenue. Management adjustments, performance continued to be under pressure for 14 years. Maintaining a “neutral” rating, the board of directors of the company received written resignation reports from Chairman Wang Guibo and General Manager Chen Yujian on 14.1.18; on January 21, Chen Yujian was elected chairman and Zhao Xuefeng, former vice president of the company, was appointed as general manager. After the company went public, it focused on terminal rectification until 12 years ago. The market environment was relatively good during the rectification period. Benefiting from price increases, product restructuring, and an increase in the share of domestic retail business, gross margin increased significantly, which helped maintain a high growth rate in net profit. The company's extension expansion has accelerated since 2012, but industry demand was weak during this period, making it difficult for terminal prices to continue to rise. At the same time, poor terminal sales forced the company to increase its OEM export ratio, which had a negative impact on overall gross margin. At the same time, the contribution of new outlets was still limited during the cultivation period, while the cost during the epitaxial expansion period was difficult to control, increasing the pressure on net profit growth. At present, the company's inventory and expenses are gradually being controlled, but the impact of anti-corruption on customization is evident (in addition to corporate group purchase orders, group purchase orders at terminal stores are also affected, causing retail business to be dragged down). At the same time, the downward trend in gross margin continues, and the pressure on the company's performance has further increased. The failure to obtain certification as a high-tech enterprise in 13 years has caused the tax rate to rise, increasing the decline in performance. In '13, the company launched high-end customization, hoping to cultivate new profit growth points. The company expects net profit to fall by 50-80% from January to June 2014, corresponding to a decrease of 31-81% in net profit for the first quarter in 14Q2 (down 5.6% in 13Q2). We judge: (1) The company announced in April '13 that it will invest in the construction of a new Shinoor Menswear Industrial Park (phase I), with an annual production capacity of 720,000 casual tops to support the ODM of Uniqlo and MOSS. It is expected that production will be put into operation in July-August '14 and that production will be reached by the end of the year, which will contribute positively to the revenue side, but due to low OEM gross margin, it is estimated that the overall gross profit margin will be reduced; (2) The company's 14 spring and summer orders will drop 10%, and it is estimated that fall and winter orders will remain flat (but it is necessary to observe later direct sales and franchise conditions) Even with the contribution of ODM production capacity, it is still difficult to improve revenue throughout the year ; (3) Menswear is still in the adjustment period, and gross margin will continue to decline when terminal discounts do not decrease and the share of exports and ODM increases; (4) The financial expense ratio is expected to decline, but the sales and management expense ratio is rigid, and the company is still renovating stores, so there is not much room for annual cost reduction. The situation in the second half of '14 depends on group purchase orders. The EPS for 14-16 was adjusted to 0.11, 0.12, and 0.14 yuan to maintain a “neutral” rating.