Core views
FY24Q3 (September/11/23) The company's total direct sales and wholesale sales increased by low double digits year on year. Among them, direct sales growth was high in double digits, mainly driven by the resumption of offline passenger flow and improved store efficiency. The increase in the sell-out rate of new products led to a year-on-year improvement in the number of low units in the discount rate. The FY24Q3 stock to sales ratio was slightly less than 4 months, and the inventory and discount performance was superior to the industry. Looking ahead, the growth rate of major brands such as Nike is expected to be steady, and new brands such as Hoka and Kailuo Stone are expected to grow rapidly.
(The company's fiscal year ends at the end of February every year; FY24 is 2023/3/1-2024/2/29) Incidents
The company issued the FY24 third quarter operating performance announcement (September 1 to November 30, 2023): FY24Q3 The company's total direct sales and wholesale sales in the single quarter increased by 10%-20% year-on-year. As of November 30, the gross sales area of directly-managed stores increased by 0.5% month-on-month compared to the quarter at the end of August, and decreased by 1.7% year-on-year.
Brief review
Driven by FY24Q3 store efficiency growth, direct sales increased by double digits, and the growth rate of major brands rebounded. The company's FY24Q3 total direct and wholesale sales increased by low double digits year on year. Among them, direct sales increased by high double digits, mainly driven by the increase in same-store efficiency. By brand, both main and non-major brands achieved double-digit sales growth. The growth rate difference between major brands and non-major brands narrowed month-on-month, and the impact of Neo store closures and Yeezy sales restrictions continued to weaken. Direct gross sales area at the end of November was -1.7% year-on-year, +0.5% compared to the end of August. Excluding the Neo store closure, the number of stores achieved net growth compared to the end of August, and channel adjustments gradually returned to normal.
The increase in the sell-out rate of new products led to a year-on-year improvement in the discount rate. The stock sales ratio was slightly lower than 4 months, and the performance was superior to the industry. The discount rate FY24Q3 improved the number of low units from year to year, and was basically flat month-on-month. The improvement in the discount rate was mainly due to increased sales of new products and good inventory control; inventory sales were slightly lower than FY24Q3 for 4 months, and both year-on-year and month-on-month improvements were superior to the industry. The inventory value at the end of November fell by double digits year on year, and was basically the same as at the end of August.
Follow-up outlook: Driven by improved discount rates and increased direct sales share, etc., the FY24H2 profit margin is expected to continue to improve; FY25 channel adjustments are expected to gradually return to normal; the company continues to increase its new brand layout, adding cooperation with brands such as Hoka and Kailuishi in '23, all of which are in a period of rapid growth and continue to contribute to growth; investing in outdoor retailers Lengshan, content agency mountain culture, and layout outdoors. The first outdoor collection store, GOEASY, opened in November.
Profit forecast: The company's revenue for FY2024-2026 is expected to be 302.6, 335.6, and 37.19 billion yuan, up 11.8%, 10.8% year on year; realized net profit of 23.0, 26.6, and 2.99 billion yuan, up 25.4%, 15.4%, and 12.5% year on year; corresponding to the latest valuations, P/E is 15.0x, 13.0x, and 11.6x, maintaining the “buy” rating. (The company's fiscal year ends at the end of February every year, and FY24 is 2023/3/1-2024/2/29)
Risk warning:
The deepening retail discount rate affects brand profit margins: At the end of the 23rd, inventory in the sportswear industry was generally high. If some brands remove inventory by deepening the discount rate, it will intensify price competition in the industry, which in turn will affect the discount rate level of the company's brands. The deepening discount rate will have an impact on the brand's profit margin.
The progress and magnitude of the recovery in turnover fell short of expectations: It is expected that with the gradual recovery of consumption, the turnover performance of the company's brands will also directly benefit. If the flow recovery of the company's brands progresses or falls short of expectations, it will affect the company's operating performance.
The progress of cooperation with new brands falls short of expectations: Increased cooperation with new brands is an important source of revenue and profit growth for the company, or the progress of cooperation with new brands falls short of expectations, which will directly affect the company's performance.