An increase of 5% in income and a big increase in expenses in 18 years dragged down the net profit by 68%. The decline in net profit of 19Q1 increased.
In 2018, the company achieved an income of 1.132 billion yuan, an increase of 5.46%, deducting non-return net profit of 23.5788 million yuan, a drop of 68.41%, a net profit of 38.3643 million yuan, a drop of 54.13%, and a planned 10-share distribution of 1.00 yuan (including tax). The lower-than-expected profit is mainly due to the substantial increase in expense rate, and the lower growth rate of non-net profit than net profit is mainly due to the increase in government subsidies included in the current profit and loss compared with the same period last year.
Quarter by quarter, 17Q3~18Q4 revenue increased by 12.77%, 12.27%, 16.34%, 5.58%, 9.85% and-4.98% respectively, and net profit increased by 39.80%,-8.94%, 30.12%,-89.76%,-85.02% and-54.70%, respectively. After 18Q2, the growth rate of company income is relatively low, and 18Q4 has declined, mainly affected by the weakness of clothing consumption. The increase of 18Q2-18Q3 sales and management expense rate leads to the decrease of net profit, the decrease of 18Q4 gross profit margin 5.51PCT, the increase of sales expense rate 4.37PCT, the increase of management expense rate 4.09PCT leads to the decline of net profit.
2019Q1 achieved an income of 291 million yuan, an increase of 5.46%, a net profit of 2.134 million yuan, a decrease of 85.18%, a net profit of 4.6651 million yuan, and a decrease of 71.99%. The company's revenue returned to growth, and the decline in net profit growth was mainly due to the decrease in gross profit margin (2.82PCT) and the increase in sales expense rate (4.55PCT).
Store expansion drives steady growth of revenue from major brands, while pressure on small brands increases.
From a brand point of view: in April 2018, the company launched a new brand MUCHELL and children's clothing brand broadcute, with five major brands: "broadcast: broadcast", "CRZ", "PERSONAL POINT", "MUCHELL" and "broadcute". In 2018, the revenue of broadcast, CRZ and PP brands was 920 million yuan, 151 million yuan and 26.5079 million yuan respectively, with an increase of 7.36%,-10.06% and 0.60% respectively. The revenue of the MUCHELL and broadcute brands was 7.4947 million yuan and 1.9182 million yuan, respectively. In 2018, the extension of broadcast stores increased by 8.68% to 826, leading to the overall revenue growth. It is estimated that the decline in store efficiency is 1.22%. The decline in CRZ revenue is mainly affected by the adjustment of brand closure. The number of stores extension decreased by 11.44% to 178, store efficiency increased by 1.56% compared with the same period last year, and the store extension of PP brand stores decreased by 25.00% to 21. Store efficiency growth led to the overall revenue basically flat.
The income of 2019Q1 broadcast, CRZ and PP was 238 million yuan, 35.3603 million yuan and 6.0613 million yuan respectively, an increase of 7.99%,-18.22% and-22.48% respectively. Broadcute realized income of 5.1136 million yuan and 1.6026 million yuan respectively. The main brand broadcast revenue maintained steady growth, with the number of stores down 1.45% from the beginning of the year to 814. The decline in CRZ and PP revenue was mainly affected by store closures.
From a sub-channel point of view: in 2018, the company's revenue from direct marketing, joining, joint marketing and e-commerce was 443 million yuan, 488 million yuan, 68.1834 million yuan and 108 million yuan, an increase of 15.74%, 0.25%,-2.17% and-3.75%.
At the end of 2018, the company had 1067 stores, with an extension increase of 7.89%. The company increased the expansion of direct channels, the extension of direct stores increased by 27.53% to 315, driving revenue growth; the distribution model steadily improved, the number of store extension increased by 2.04% to 649; the number of joint sales stores decreased by 2.83% to 103; the number of major brands decreased; e-commerce revenue decreased by the company's transfer of out-of-season goods to offline Olai.
2019Q1's revenue from direct marketing, distribution, joint sales and e-commerce was 134 million yuan, 107 million yuan, 23.0906 million yuan and 21.2014 million yuan respectively, up 1.00%, 14.79%,-8.03% and-2.13%, respectively. At the end of March 2019, there were 1041 stores, down 2.44% from the beginning of the year.
The gross profit margin dropped slightly, the direct operation of the store led to a big increase in the expense rate, and the pressure on cash flow increased.
Gross profit margin: in 2018, the gross profit margin was also reduced by 0.19PCT to 59.89%, which remained basically stable compared with the same period last year. In 2018, the gross profit margins of broadcast, CRZ and PP were 61.35%, 58.83% and 56.44%, while those of 0.31PCT,-2.77PCT, 2.97 PCT and broadcute were 64.94% and 54.31% respectively. In 2018, the gross profit margin of direct operation, franchise and other channels was 69.94%, 55.82% and 52.25%, with the increase of-4.42PCT, 2.61PCT,-1.16PCT, and a net increase of 18 Olai stores, resulting in a decline in gross profit margin.
17Q3~19Q1 single-quarter gross profit margin is 60.29% (+ 0.13PCT), 56.59% (- 1.00PCT), 64.21% (- 0.31PCT), 63.47% (+ 2.75PCT), 63.26% (+ 2.97PCT), 51.08% (- 5.51PCT), 61.39% (- 2.82PCT), respectively. 18Q4-19Q1 clothing sales are weak, and the company's discount promotion efforts lead to a decline in gross profit margin.
Expense rate: in 2018, the company's expense rate increased from 6.70PCT to 53.33% compared with the same period last year. Among them, the sales expense rate rose from 4.42PCT to 36.91% compared with the same period last year, mainly due to the increase in promotion fees, store rent, decoration and staff salary, while the management expense rate (including R & D expenses) rose from 2.72PCT to 16.48% compared with the same period last year, mainly due to the increase in staff salary, clothing and fabric R & D investment. The financial expense rate decreased by 0.44PCT to-0.05% compared with the same period last year, mainly due to the impact of foreign subsidiary loan exchange gains and losses.
During the period of 2019Q1, the expense rate increased by 3.01PCT to 54.18%, the sales expense rate by 4.55PCT to 38.26%, the management expense rate by 1.67PCT to 15.36%, and the financial expense rate by 0.14PCT to 0.57%.
Other financial indicators:
1) the total inventory at the end of 2018 was 378 million yuan, an increase of 35.97% over the beginning of the year, mainly due to the increase in the number of stores directly operated by the company and the increase in raw material reserves. The storage age within one year accounts for 80.69%, and the overall storage age structure is relatively healthy. Inventory / income in 18 years was 33.39%, up from 25.91% in 17 years, inventory turnover was 1.38, down from 1.73 in 17 years, and inventory turnover slowed down. Inventory at the end of March 2019 was 15.34% lower than at the beginning of the year to 320 million yuan.
2) at the end of 2018, accounts receivable increased by 2.06% to 86.8385 million yuan compared with the beginning of the year, which was basically stable compared with the same period last year. The turnover rate of accounts receivable was 13.17 yuan. In the same period of 17 years, accounts receivable decreased by 1.14% to 85.8499 million yuan compared with the same period at the beginning of the year.
3) the asset impairment loss in 2018 increased by 12.38% to 45.9107 million yuan, mainly due to the increase in inventory depreciation loss, while the 19Q1 asset impairment loss increased by 24.13% to 17.6376 million yuan.
4) in 2018, non-operating income increased by 174.04% to 2.0587 million yuan, while 19Q1 non-operating income decreased by 53.54% to 227900 yuan compared with the same period last year.
5) the net cash flow of operating activities was-24.7969 million yuan in 2018 and 23.1464 million yuan in 2017, mainly due to the company's launch of a new brand in 2018, large investment in store operation and promotion costs, and revenue falling short of expectations. The net cash flow of 2019Q1 operating activities also decreased by 81.02% to 8.9951 million yuan.
The company's revenue is growing steadily and profitability is expected to pick up.
The company plans to achieve operating income of 1.19 billion yuan in 2019, an increase of 5.12%, and a net profit of 51.45 million yuan, an increase of 34.11%. Profitability is expected to pick up.
We think: 1) in terms of revenue, the company continues to expand the brand matrix, the current five major brands positioning different customer groups, covering a wide range of areas. The company adopts omni-channel operation mode, using direct marketing, joint marketing, distribution and other models, offline marketing network covers 30 provinces. The company will carefully promote the expansion of direct channels of main brands and new brands, optimize the structure of distribution and joint venture channels, and gradually resume net opening after the number of stores of CRZ and PP brands is stable, which is expected to lead to stable growth of revenue. 2) in terms of profitability, the company's gross profit margin is relatively stable, and the expansion of the company's direct stores in 2018 led to a large increase in fees. In 2019, the company will control the pace of store opening, reduce the rate of expenses, and promote the gradual recovery of profitability. 3) on September 26, 2018, senior executives Lin Liang and Zheng Zheng planned to reduce their holdings by no more than 400000 shares and 450000 shares respectively, accounting for 0.17% and 0.19% of the total share capital, respectively. On December 4, 2018, it was announced that Lin Liang had completed the reduction, with an average price of 11.04 yuan per share and 400000 shares; on December 29, 2019, Zheng Zheng announced that the implementation of the reduction was completed, with an average price of 10.86 yuan per share and 450000 shares.
We are optimistic that the company caters to the trend of personalized clothing consumption, the extension of the main brand continues to open stores, the income grows steadily, the channels of PP and CRZ brands are expected to be adjusted to an end, and new brands begin to make efforts, leading to steady growth of income. As we judge that the future company expense rate is higher than previously expected, we downgrade the EPS to 0.21 EPS 0.27 yuan (the previous value is 0.55 Universe 0.62 yuan) from 1919 to 2020, and forecast that the EPS will be 0.33 yuan in 2021. The current stock price corresponds to 44 times PE in 2019, which is highly valued in the short term and downgraded to "neutral" rating.
Risk tips: weak consumption; channel expansion is not as expected; new brand building is not as expected; inventory backlog and so on.
