2023Q3 profit is under pressure in the short term. It is optimistic about steadily expanding domestic stores & increasing gross profit, and maintaining a “buy” rating
In 2023Q1-3, the company achieved revenue of 3.755 billion yuan (+1.0%), and realized net profit of 416.389 million yuan, an increase of 6.2%/5.4%; of these, 2023Q3 achieved revenue of 1,298 billion yuan (-2.8%), and realized net profit of 132/131 million yuan, a decrease of 22.2%/18.4%, mainly due to pressure on overseas furniture business profits in 2023Q3. Considering that pressure on the short-term furniture business affects overall performance, we have lowered our 2023-2025 profit forecast. The net profit for 2023-2025 is expected to be 6.14/7.25/825 million yuan (previously 7.15/820/937 million yuan), corresponding to EPS of 0.74/0.87/0.99 yuan, and the current stock price corresponding to PE is 13.3/11.3/9.9 times, respectively. Considering the company's active offline opening and improving store efficiency, online margin has achieved high-quality growth and maintained a “buy” rating.
Domestic home textiles are growing steadily, and the US business is under pressure in the short term. Optimistic about the peak season sales of home textiles & the healthy development of the US
Domestic home textiles: Improved offline store efficiency combined with steady expansion of stores, optimistic about peak sales in Double 11 and Q4. Looking at each channel, offline channels have achieved steady growth, mainly due to improvements in direct-run store efficiency due to improved management and retail efficiency, while franchisees are cautious in picking up goods and are optimistic that future franchisee confidence will increase, and delivery will accelerate; in terms of channel expansion, the company continues to push forward its store opening strategy. Currently, store opening is progressing smoothly, and it is expected that it will continue to seize market share. Through online channels, the company actively prepares for peak season sales, carries out traffic and brand launch ahead of schedule, and is optimistic about sales performance during the Double 11 and Q4 seasons. American furniture: Profit is under pressure in the short term due to a combination of factors, and it is optimistic that operations will continue to develop healthily and continuously under inventory removal in the future.
Increased online gross margin combined with fee control, steady increase in profitability, and good operating capacity
Profitability: 2023Q1-3 gross/net margin was 44.68%/11.08%, +2.09/+0.54pct year-on-year, respectively. On a quarterly basis, 2023Q1/Q2/Q3 single-quarter gross margin was +2.17/+1.95/+1.86pct year-on-year respectively. Online adhering to the strategy of increasing gross profit margin and increasing the gross profit margin steadily. The 2023Q1-3 sales/management/finance/R&D expense ratio was +1.8/-0.2/+0.2/+0.3 pct to 23.2%/5.8%/2.4%/-0.2%, respectively. The increase in sales expenses was mainly due to the company's early drainage activities for Double 11 and Q4 peak seasons to prepare for Double 11. Operating capacity: As of the end of 2023Q3, the inventory was 1,451 billion yuan, -11.4% year-on-year, the number of inventory turnover days was 201 days (+14 days); the number of accounts receivable turnover days was 38 days (+4 days), and the net operating cash flow of 2023Q1-3 increased by 312% to 590 million yuan.
Risk warning: Store expansion falls short of expectations, e-commerce competition intensifies, and US business recovery falls short of expectations.