Revenue fell 0.22% from January to September '19, net profit and loss
From January to September 2019, the company achieved revenue of 791 million yuan, a decrease of 0.22%. Net profit returned to the mother was 775,300 yuan, the same period in 2018 was 20.9011 million yuan, net profit of non-return to the mother was 8.998 million yuan, the same period in 2018 was 8.4736 million yuan, and EPS was -0.003 yuan. Losses after deducting non-net profit were mainly due to a decrease in gross margin, an increase in the management expense ratio and financial expense ratio. The decrease in net profit and loss to the mother was mainly due to a year-on-year increase in government subsidies, non-current asset disposal gains and losses, and entrusted investments that included current profit and loss.
On a quarterly basis, 2018Q1-2019Q3's revenue increased 16.34%, 5.58%, 9.85%, -4.98%, 5.46%, -3.40%, -3.13%, and net profit increased by 30.12%, -89.76%, -85.02%, -54.70%, -71.99%, profit to loss, 421.33%. The low revenue growth rate in 19Q3 was mainly due to factors such as weak clothing consumption, adjustments in the company's PP and CRZ positions, and a decline in the number of stores. The growth rate of net profit was higher than revenue mainly due to factors such as a 6.00PCT drop in the sales expense ratio, an increase in net investment income, and a 68.74% decrease in asset impairment losses.
Gross margin declined due to inventory clean-up, etc., and the cost ratio increased during the period
Gross profit margin: From January to September 2019, gross margin fell 4.48 PCT to 59.18%. Among them, the gross margin of brands such as broadcast, PP, CRZ, MUCHELL, and broadcute was 62.84%, 31.36%, 57.32%, 52.07%, 48.75%, the same increase of -0.75PCT, -29.14PCT, -5.52PCT, -15.41PCT, -6.12PCT, mainly due to PP and CRZ brand positioning adjustments and extensive inventory clean-up efforts. Many MUCHELL and broadcute brand stores have been operating for a short time, have not had a scale effect, costs have increased dramatically, and there are many promotions of seasonal products that affect gross profit margins.
Expense rate: The cost rate for the company period from January to September 2019 increased by 0.75 PCT to 56.27%. Among them, the sales expense ratio decreased by 0.37PCT to 38.76%, mainly due to the closing of stores, which reduced store rent, staff remuneration, etc.; the management expense ratio (including R&D expenses) increased by 0.87PCT to 17.05%, mainly due to the increase in personnel remuneration, clothing and fabric R&D investment; and the financial expense ratio increased by 0.25PCT to 0.46%, mainly due to increased interest on loans.
Short-term profit growth is under pressure, so focus on the company's future performance
We believe: 1) In terms of revenue, the company continues to promote an omnichannel strategy, enhance user experience, and continue to strengthen R&D investment to strengthen product competitiveness. In the future, the company will carefully develop offline channels and optimize store operations and product management capabilities. 2) In terms of profitability, the company closed loss-making stores in 2019, and Q2 single-quarter losses dragged down performance. In the future, the company will restructure the management team, optimize the business management process, control expenses, and promote a gradual recovery in profitability.
Since the decline in the company's gross margin exceeded previous expectations, we lowered our EPS forecast for 2019-2021 to 0.07/0.10/0.14 yuan (previous value was 0.21/0.27/0.33 yuan). The current stock price corresponds to 140 times PE in 2019. The valuation is high, maintaining a “neutral” rating.
Risk warning: weak consumption; channel expansion falling short of expectations; new brand building falling short of expectations; inventory backlog, etc.
