2017 performance was lower than expected
Smith Barney announced its 2017 results: revenue was 6.472 billion yuan, down 0.7% from the same period last year, while its profit turned into a net loss of 305 million yuan per share, corresponding to a net loss of 0.12 yuan per share. The company will not pay dividends during the period. The performance was lower than expected, mainly due to the decline in wholesale revenue and did not generate 550 million yuan in asset disposal income in 2016. 4Q17's revenue grew by 12.2% in a single quarter and turned into a profit or loss in a single quarter compared with the same period last year. The company also announced 1Q18 results: revenue of 2.178 billion yuan, an increase of 30.1% over the same period last year, and net profit of 50.41 million yuan, an increase of 74.2% over the same period last year.
(1) according to the channel, the direct revenue continues to grow, but the franchise revenue decreases. (2) by brand, the decline in 3Q17 performance has been reversed: the same store in 4Q17, the first and second tier cities of the Metersbonwe brand, grew by nearly 10%. In December, the same store increased by 25%; the annual retail revenue of high-end brand ME&CITY grew by 21%, which was further accelerated from 11% in the first half of the year; and the revenue of children's clothing brands Moomoo and ME&CITY KIDS increased by 32%. (3) by product, the income of men's wear, women's wear and children's clothing decreased by 5.2%, increased by 3.2%, and increased by nearly 30%.
Profitability still needs to be improved. Gross profit margin rose 3.7ppt to 47.5 per cent year-on-year, benefiting from higher unit prices (revenue from apparel sales fell 0.7 per cent while sales volume fell 8.9 per cent, that is, an increase in average product prices by about 9 per cent), but operating profits were dragged down by (1) the current period did not have a large asset disposal as in 2016 and (2) the rate of sales and management expenses increased 1.5ppt. The loss of asset impairment increased by 39%, mainly due to the increase in the provision for inventory decline. Inventory turnover days increased by 51 days to 233 days, partly due to an increase in new stores.
Trend of development
(1) the company expects 1H18 to make a net profit of 0,050 million yuan, mainly driven by revenue growth. (2) considering the growth of the company's 1Q18 performance and the recent operating conditions of other clothing brands, April sales performance is expected to continue the recovery trend.
Profit forecast
According to the company's first-half performance guidelines, we lowered our 2018e profit forecast by 9.3% to 0.03 yuan, while introducing a 2019e profit forecast of 0.05 yuan. Net profit per share of 2018x19e is expected to reverse loss / increase by 49% compared with the same period last year.
Valuation and suggestion
The company's current share price corresponds to 87 times / 59 times the price of 2018 Compact in 1919. Maintain the neutral rating, and lower the target price by 26% to 2.96 yuan, which corresponds to 1 times Pamp S in 2018, implying 6.5% upside space. 1Q18 achieved high growth from a low base in the same period last year and the company expects to reverse losses in the first half of the year, but profitability continues to be under pressure and further cost control is needed.
Risk
Terminal sales continue to decline; expense rates are further high.
