Revenue declined and net profit was lost in 2015. The 16Q1 performance improved. In 2015, the company achieved operating income of 6.295 billion yuan, a year-on-year decrease of 4.92%; net profit of 432 million yuan, a year-on-year decrease of 396.57%, and EPS - 0.17 yuan. There was a loss in net profit, mainly due to lower gross margin, higher cost rates, and higher income tax expenses (current income tax expenses increased by 27.771 million yuan, deferred income tax expenses increased by 227 million yuan). After deducting non-net profit of 445 million yuan, a year-on-year decrease of 573.36%, the decline was higher than net profit, mainly due to a decrease in government subsidies of 22.71886 million yuan and a decrease in other non-operating income of 17.9813 million yuan. 15Q1-Q4 revenue -4.75%, -11.22%, -8.78%, +2.08%, net profit -63.59%, -284.70%, -273.55%, -217.99%. Revenue growth in Q4 was corrected. The significant decline in net profit was mainly due to lower gross margin, higher expense ratio, and lower non-operating income. 16Q1 revenue was 1,922 million yuan, up 9.56% year on year, net profit of 51.3734 million yuan, same increase of 32.38%, net profit minus 49.9539 million yuan, same increase of 46.47%. Revenue growth in 16Q1 benefited from a recovery in sales. Among them, direct sales continued to grow steadily, and franchises were basically flat and grew slightly; net profit growth was higher than revenue benefited from higher gross margin, lower expenses, and investment income increased by 17475% (mainly from investment income in Shanghai Huarui Bank), and net profit growth was higher than net profit, which was reduced by 54% in income tax expenses, mainly due to reduced income tax expenses to cover losses in previous years. Net closure of stores, direct management, MC, and e-commerce contributions increased (1) The total number of stores in 2014 was more than 3,700 (less than 1,000 directly managed), a further decrease compared to nearly 4,000 in 2014, and the epitaxial growth rate was negative. (2) By brand, the MB brand accounted for about 70% of revenue in 2015, direct sales revenue increased 7% year on year and franchise decreased 16%; adult clothing MC brand sales revenue increased 26% year on year, and children's clothing Mickey's growth rate was over 20%. (3) By channel, direct sales account for 50-55%, and franchise sales account for more than 40%. While the transformation of direct business is progressing rapidly, the improvement in the performance of franchise channels is still lagging behind; in terms of e-commerce sales, the entire network, and regular sales revenue, sales revenue increased 123% over the same period last year. (4) In terms of volume and price, wholesale and retail sales fell 0.28% year on year, and launch prices fell 4.72%. (5) By region, the revenue of the four regions of East, West, South and North increased by -2.09%, -0.56%, +0.63% and -3.04%, respectively. Gross margin declined, cost ratio increased, inventory was affected by new products, and gross profit margin increased: gross margin fell 1.15 PCT to 44.02% in 2015, mainly because it was still in the adjustment period in 2015. Looking at quarterly data, the 15Q1-16Q1 gross margin was 42.68% (-1.83PCT), 50.88% (-5.37PCT), 41.07% (-3.10PCT), 43.95% (+3.88 PCT), and 43.93% (+1.25PCT), respectively. Among them, the increase in gross margin in 15Q4 and 16Q1 was mainly due to a recovery in performance and an increase in the share of new products. Expense ratio: The sales expense ratio increased by 2.14PCT to 34.86%, mainly due to freight +48.56% (5.46%), advertising expenses +136.00% (5.34%); management expenses increased 1.69 PCT to 5.12%, mainly due to the increase in IT-related expenses in 2015 compared to last year. Specifically, employee wages and benefits +74.03% (57.28%), management consulting fees +65.38% (6.31%), office expenses +61.61% (6.14%) ); The financial expense ratio decreased by 0.10 PCT to 1.85%. The 15Q1-16Q1 sales expense rates are 32.07% (+0.84PCT), 48.42% (+9.23PCT), 33.23% (+2.29PCT), 31.59% (-0.24PCT), and 30.04% (-2.03PCT); management expense rates are 3.29% (+0.23PCT), 8.85% (+4.29PCT), 5.43% (+0.95PCT), 4.56% (+2.37PCT), and 3.98% (+0.69PCT) ; The financial expense rates were 1.92% (+0.26PCT), 2.58% (-0.56PCT), 1.81% (-0.34PCT), 1.44% (0.10PCT), and 1.74% (-0.18PCT), respectively. The increase in the 16Q1 management fee rate was mainly due to increased investment in Internet and mobile Internet technology upgrades. Other financial indicators: 1) Inventory at the end of 2015 increased by 30.59% from the beginning of the year to 1,875 million, of which inventories increased 32.23%, due to an appropriate increase in the scale of new product procurement in accordance with the marketing plan. Among them, inventory/revenue was 29.78%, inventory price drop preparations/inventory was 2.25%, and inventory turnover was 3.80; inventory turnover in 16Q1 declined, down 5.74% from the beginning of the year to 1,767 billion. 2) Accounts receivable increased 5.76% from the beginning of the year to $248 million; 16Q1 accounts receivable increased 14.43% from the beginning of the year to $284 million. 3) Asset impairment losses decreased by 7.67% compared to the same period last year to $237 million, of which bad debt losses - 18.87 million yuan, inventory loss increased - 17.62 million yuan; 16Q1 asset impairment losses increased 193.86% year over year to 9139 million yuan, which is due to an increase in inventory price reduction preparations. 4) Non-operating income fell 70.79% year on year to 30.97 million yuan, major fixed asset disposal profits - 6639,800 yuan, government subsidies - 457.66 million yuan; 16Q1 non-operating income fell 65.25%% to 3.28 million yuan, mainly due to a decrease in contract penalty revenue. 5) Net cash flow from operating activities decreased by 113.99% compared to the same period last year to -185 million. This is due to a decrease in sales revenue, a decrease in sales payment compared to the previous year. At the same time, there was an appropriate increase in procurement scale, and production and procurement capital paid increased compared to the previous year; 16Q1 net cash flow from operating activities was 229 million yuan, down 40% year on year, mainly due to an increase in procurement scale. 6) Income tax expenses increased by 197.63% over the previous year to $300 million, mainly due to a sharp decrease in deductible losses, which led to a decrease of $283 million in deferred income tax assets and an increase of $227 million in deferred income tax expenses. The Internet+ transformation continues to advance. Since 2012, some equity companies that have planned to acquire C2M Clothing Company have taken the transformation and development of the Internet as an important long-term strategy for the company. They have successively withdrawn their purchases, taken the lead in O2O operations (October '13), launched the Youfan App (April '15), and deployed Internet+ by a fixed amount of 9 billion dollars (July '15). 2015.11.21 The company announced that the fixed increase was adjusted to not less than 5.94 yuan/share increase of no more than 707 million shares, raising no more than 4.2 billion yuan, and investing in the construction of an “intelligent manufacturing” industrial supply chain platform (2.5 billion yuan), an O2O multi-brand sales platform (1.2 billion yuan), and an Internet big data cloud platform center (500 million yuan). It is estimated that the “intelligent manufacturing” industrial supply chain platform project will achieve an average annual revenue of 2,381 billion yuan in five years (including 2,261 billion yuan in platform management expenses and service revenue), and the O2O multi-brand sales platform can achieve an average annual revenue of 9.773 billion yuan in five years. Furthermore, in order for the supply chain integration platform to drive the common development of all ends of the industry and help designer brands and small clothing companies with resource requirements grow, the company plans to enter the Internet finance industry through cooperation with third-party financial companies in the future. 2016.1.16 The company plans major asset restructuring and suspension of trading, and 2016.1.29 announced the termination of major asset restructuring to acquire shares in C2M garment industry companies. However, the company will work hard to improve its business layout. It is not ruled out that it will continue to integrate the superior resources of the new industrial chain with business synergy and enhance enterprise development capabilities. Performance pressure is still high. It is expected that the transformation effect will be reflected in the 2016 company plan: 1) Product: Relying on accurate brand positioning, increasing cross-border cooperation with well-known animation, game and Internet companies for marketing and promotion; through the official opening of Shanghai Disney Park, launch a variety of Disney fashion products, including men's and women's casual wear, home wear, children's clothing, accessories, and casual shoes. 2) Channels: Consumer-oriented to achieve differentiated positioning and fine management of channels, planning, design, production, products, logistics, retail, etc.; at the same time, direct channels have ushered in improvements and franchise channels are still being adjusted. In the future, companies will copy direct management experience to franchise channels to improve franchise terminal business performance; 3) Internet +: launch the “intelligent manufacturing” industry supply chain platform and O2O multi-brand sales platform, innovate the C2M/B2M model, cooperate with global fashion brands, and initially establish an O2O multi-brand sales platform. The company expects to achieve net profit of -90,000 to 200,000 yuan in 2016 H1, an improvement over last year's -94.7602 million yuan, mainly to increase the implementation of various business strategies and gradually show the effects of adjustments. We judge: 1) Since 15Q4, the company's quarterly revenue has ushered in positive growth and an increase in growth rate, and the initial recovery trend is currently showing; looking at the sub-channel, direct management has shown growth, and the effects of franchise adjustments have not yet been shown. Further strengthening of the company's channel adjustments is expected to pick up revenue in the future; however, since the company is still in a period of business model adjustment and significant investment in the transformation of Internet+, costs are still expected to remain high, which is still a drag on performance, and performance pressure is still high. 2) Huarui Bank, with an investment of 450 million yuan and 15% of shares, opened last year. It is expected that it will begin to contribute investment income in the future. At the same time, business cooperation with the company will provide diversified value-added services, which are conducive to the integration of industry chain resources and the formation of synergies; 3) The company planned a major asset restructuring in January 2016, targeting C2M companies in the garment industry, then discontinued. It is expected that there will still be future mergers and acquisitions, and it is expected that the next catalyst will be launched. 4) 2015.08.07 The company announced that due to the effects of the transformation from the traditional business model to the internet-based business model, it will still take time to show the effects of the transformation from the traditional business model to the internet-based business model. The restricted equity incentive plan did not meet the conditions for the first phase of unlocking, and the first batch of 1.5 million shares (adjusted) of restricted stocks granted to 2 incentive recipients was repurchased and cancelled at 4.65 yuan/share (adjusted). 5) 2016.1.22 Huafu Investment, the controlling shareholder, increased its holdings by 4.49 million shares at an average price of 6.71 yuan/share, completing the 2015.7.9 increase plan. Against the backdrop of a slump in terminals, the company has made significant adjustments, implemented an Internet+ transformation in its business model, implemented a partner system in terms of organizational structure, and increased employee incentives. The fixed increase of 4.2 billion dollars shows the company's determination to transform. The model adjustment period compounded by the period of industry adjustment will inevitably cause performance pain. The company's performance has continued to decline in recent years, and losses occurred in 2015. Although there have been signs of improvement on the revenue side in a single quarter since 15Q4, it is still some time before net profit recovers, and the pressure on performance is still high, and losses are expected to be reversed in 2016. Adjust the 16-18 EPS to 0.00, 0.03, and 0.05 yuan (if the fixed increase is completed, the EPS will be diluted) to maintain a “neutral” rating, and expect the effects of the Internet+ transformation to gradually become apparent. Risk warning: fixed growth has not progressed as expected, consumption is weak, and Internet transformation has fallen short of expectations.