Event

On the evening of March 22, La Chabel released its annual report for 2017. the company achieved a total revenue of 8.999 billion yuan in 2017, an increase of 5.24% over the same period last year, and its net profit was 499 million yuan, down 6.29% from the same period last year (excluding the impact of changes in bad debt estimates). Net profit fell 0.91%). In 2017, Q4 achieved a revenue of 2.767 billion yuan in a single quarter, an increase of 0.04% over the same period last year, and a net profit of 159 million yuan, down 23.24% from the same period last year.

Brief comment

1. The company's revenue increased steadily, 7m and Labetti developed rapidly, and continued to break out online.

In 2017, the company continued to promote fast fashion, multi-brand strategy, online and offline sales network rapid expansion, achieved good revenue performance. For the whole year, the company achieved operating income of 8.999 billion yuan, an increase of 5.24% over the same period last year. The increase in revenue was mainly due to the expansion of monopoly channels and the growth of revenue from online platforms.

From a brand point of view, 7m and Labetti are growing rapidly. In 2017, the operating income of the major women's wear brand La Chapelle reached 2.228 billion yuan, down 1.05% from the same period last year, accounting for 24.8% of the business income of 1.833 billion yuan, down 10.03% from the same period last year, accounting for 20.37%. The decline in the revenue of the two major women's clothing brands was mainly due to the poor performance of the counter business in department stores; the operating income of 7 Modifer was 1.489 billion yuan, up 13.39% from the same period last year, accounting for 16.5% The operating income of La Babite was 1.321 billion yuan, up 27.96% over the same period last year, accounting for 14.7%. The operating income of JACK WALK / Pote was 576 million yuan, down 2.31% from the same period last year, accounting for 6.4%. The operating income of men's wear brand UlifeStyle was 491 million yuan, an increase of 17.36% over the same period last year, accounting for 5.5%. The operating income of fast fashion brand Candie was 450 million yuan, up-1.86%, accounting for 5.0%. 8eM, Othermix and other brands have combined revenue of 612 million yuan, accounting for 6.8%.

From a sub-channel point of view, monopoly performance is rising steadily, and the online growth rate is beautiful. In 2017, the operating income of counter, monopoly and online was 3.9 billion yuan (- 11.13%), 3.73 billion yuan (+ 15.92%) and 1.341 billion yuan (+ 44.86%) respectively, accounting for 43%, 41% and 15% respectively. Offline income totaled 7.63 billion yuan, an increase of 0.3% over the same period last year, and the online growth rate was much better than that offline.

2. The decline of gross profit margin, the rise of sales expenses and the change of accounting receivable lead to a decrease of 6.29% in homing net profit.

In 2017, the company realized a net profit of 499 million yuan, down 6.29% from the same period last year. The reason for the decline in the company's net profit compared with the same period last year is mainly due to the decline in over-the-counter revenue caused by the transformation and adjustment of department store channels, as well as the increase in the annual losses of OTR, Siastella and other brands in the cultivation period. In addition, the company's accounting estimate on the proportion of bad debts receivable was changed in 2017, resulting in a decrease of 28.6 million yuan in net profit in 2017. if calculated according to the previous accounting estimation method, the net profit decreased by 0.91% compared with the same period last year.

Sales discount increases + low gross margin online share increases, dragging down gross profit margin. In 2017, the company achieved a gross profit of 5.628 billion yuan, up 2.7% from the same period last year, and the comprehensive gross profit margin was 62.54%, down 1.5pct from the same period last year. Among them, the gross profit margin of the company's clothing business decreased by 1.61 pct, mainly due to the decline in the actual unit price of the company's products in 2017 compared with the same period last year and the poor performance of the counter business. In addition, due to the strong discount on online sales, the company's average offline gross profit margin in 2017 was 63.6%, and the online average gross profit margin was 56.6%. The significant discount caused by the significant increase in the proportion of online platform sales in 2017 also led to the pressure on gross profit margin.

Sales expenses increased, administrative expenses decreased, and financial expenses increased slightly. In terms of period expenses, the company adopts the all-direct sales model, mainly based on sales expenses. In 2017, the company's sales expenses were 4.355 billion yuan, an increase of 10.00% over the same period last year, and the sales expense rate was 48.40%, an increase in 1.09pct over the same period last year, mainly due to the increase in employees' wages and benefits (115 million), the amortization fee for long-term amortization of decoration (80 million), the increase in e-commerce marketing investment and the increase in rental costs caused by the expansion of retail stores (74 million). The company's management expense rate was 4.33% in 2017, slightly lower than that in 2016, while the financial expense rate rose slightly to 0.18%, mainly due to an increase in loan interest expenses and a decline in exchange earnings compared with the same period last year.

3. Independent cultivation + denotation promotes multi-brand and multi-category extension, and deeply covers the broad mass clothing market.

The company has a perfect brand matrix and rich categories. La Chabel is a fast fashion, multi-brand and all-direct fashion group located in the mass consumer market. the company has five popular fashion women's clothing brands with complementary styles and intertwined customer positioning, such as La Chapelle, Puella, 7 Modifer, La Babite and Candie's, which can widely meet the diversified clothing needs of female consumers. And POTE and other popular fashion men's wear brands, LaChapelle Kids children's wear brands, to further enrich the brand portfolio. In addition, through self-cultivation and external holding merger, the company has launched a number of online and offline brands such as JACKWALK, O.T.R, MARC ECKO, OTHERMIX and Siastella, and continues to dig deep into the mass clothing market.

The combined revenue share of new brands such as 7m, La Babite, La Chapelle Kids and POTE launched since 2011 has increased from 19.63% in 2013 to 48.21% in 2017. The multi-brand strategy has effectively enhanced the diversification and stability of the company's revenue structure.

4. the layout of shopping centers, e-commerce continues to rise, and the "omni-channel + all-direct" sales network covers the whole country.

The offline network continues to expand, and the layout of shopping centers makes efforts. Based on cost-effective multi-brand mass products, the company has established a nationwide, service-oriented and rapid response retail network. By the end of 2017, the company had a total of 9448 offline physical stores, with the urban layout mainly in second-and third-tier cities, with stores accounting for more than 2. 3%. In terms of channel format, there were 5707 over-the-counter stores, 3728 monopoly stores and 13 franchise stores.

In recent years, department stores are facing the dilemma of aging channels and declining passenger flow, so the company has made great efforts to promote channel transformation in recent years, strategically closing some counter stores in department stores and ploughing monopoly stores in shopping centers. In 2017, monopoly revenue reached 3.73 billion yuan, an increase of 15.92% over the same period last year; the proportion of monopoly stores increased from 35.6% in 2016 to 39.5% in 2017. At present, the proportion of counter and specialty stores is 60.4% and 39.5%, respectively. It is expected that in 2020, the number of counter and monopoly stores will be the same.

Online channels are growing rapidly and their share is increasing. The company began to establish online channels and achieve rapid growth through well-known e-commerce platforms such as Tmall Mall in 2014. In April 2015, the company completed its investment in Hangzhou, a professional clothing e-commerce company, introduced its seven-grid team to strengthen the professional operation ability of the company's e-commerce business, and greatly improved online sales. In 2017, the company's online sales revenue reached 1.341 billion yuan, up 44.86% from the same period last year; the proportion of online sales has increased steadily since 2014, from 0.61% in 2014 to 14.95% in 2017. According to the situation of Volkswagen brands in the industry, the online share of the future is expected to reach 20%, 25%, and the growth prospect is promising.

5. optimization of inventory management, increase of information technology, and steady improvement of operation efficiency.

Inventory management is steadily improving, with a slight decline in 17 years under the influence of the Spring Festival. In recent years, the company continues to strengthen the monitoring and management of inventory, strengthening the marketability of product development, the planning of inventory procurement and the timeliness of commodity allocation. from 2014 to 2016, the company's inventory turnover increased steadily, which is higher than the average level of comparable companies in the industry. The speed of inventory turnover in 2017 was slightly lower than that in 2016, mainly due to an increase in product inventory in autumn and winter in 2017 compared with the same quarter last year, with the Spring Festival in 2018 one month later than in 2017, resulting in an increase in winter product distribution in 2017. as well as the improvement of domestic environmental protection standards, the cost of single-piece production of winter products has increased.

The layout of the information-based supply chain is accelerated, and the operation and management is greatly increased. In 2017, the company invested about 70 million yuan to fully launch the RFID (Radio Frequency Identification) system to track the flow of individual pieces of clothing from suppliers to warehouses and then to retail stores, effectively identify counterfeit and counterfeit products, and greatly improve logistics efficiency and store inventory speed and accuracy. With a strong store network and three major logistics bases (Taicang, Tianjin and Chengdu), the speed of store distribution, replenishment and delivery of online orders has been significantly improved, and the operational efficiency has been significantly enhanced.

Investment suggestion: the company's "self-cultivation + M & A" two-wheel drive multi-brand strategy, deep ploughing the broad mass clothing market, men's wear and children's wear, e-commerce sales explosive power is sufficient. The channel network covers the whole country densely, the full direct operation mode helps the strategy to advance rapidly, the RFID system comes online in an all-round way, the operation efficiency is expected to jump greatly, and the competitiveness will continue to improve in the future. We expect the company to achieve net profit of 582 million yuan, 6.47 yuan and 599 million yuan from 2018 to 2020, with EPS of 1.06,1.18,1.09 yuan per share and corresponding PE of 14.7,13.2 and 14.2 times respectively, maintaining the "buy" rating.

Risk factors: the decline in consumer demand, the performance of new brands is not up to expectations, the average single-store sales performance decline and other risks.