High-end sports and leisure are booming, and improved store efficiency in 2023 will drive high-quality growth in the company's performance. 1) We judge that the company's store expansion has been smooth since 2023H2. It is estimated that the number of stores is expected to increase by a net of about 80 in 2023 (the increase is a high single digit). The quality of the company's store operations improved in 2023. Considering the environmental base, we judge that the company's turnover continued to grow rapidly year on year from November to December 2023, which is expected to drive the company's 2023Q4 revenue increase 15% to 25% year over year /performance increase 20% to 25% year on year. 2) Taking into account the performance of the first three quarters of 2023, we estimate that the company's revenue is expected to grow by 23% to 26% /performance is expected to increase by 30% to 31% in 2023.
In 2024, store expansion+operational efficiency improvement, the outstanding fundamental performance is expected to continue. 1) According to the company's business pace, we judge that the recent 2024 Autumn/Winter Order Meeting was successfully held. It is estimated that the company's new product line will be further rejuvenated and high-end, emphasizing simple design and iterating on high-quality fabrics. Considering current industry trends, we judge French elegant sports, Guochao's new Chinese style, or new themes. 2) Judging from the store expansion plan, we estimate that the number of the company's stores is expected to increase by 120 to 150 in 2024 (the increase is expected to be low by double digits), and the quality of store operation is expected to continue to improve along with the accumulation of brand value and product strength. Overall, we expect the company's revenue to grow by 20% and performance to increase by 25-30% in 2024.
In the medium to long term, the company's main brand Beinlefen continues to settle down, upgrade products, expand channels, and firmly occupy the minds of consumers. Other brands are still in the incubation stage. We estimate that K&C and CERRUTI 1881 expect new products to be unveiled in the fall and winter of 2024, opening up room for imagination for long-term development.
1. Product: The quality of main brand products continues to be upgraded, adhering to high-end, quality and youthfulness. ① Focusing on fabric quality and functionality, in the fall and winter of 2024, a new product line such as functional down jackets was launched in the fall and winter of 2024 in combination with BG Old Flower Design.
② Innovative style design. The new national style “Forbidden City Palace Culture Joint Name” series continues to be iterated. Currently, a new “Dragon Star World” series with the theme of the Year of the Dragon has been launched to meet consumer preferences. ③ The SKU for sports series products continues to be rich. Starting in 2022, an independent offline store will be opened, and a golf Tmall flagship store will be opened online to explore the potential of the high-end sports fashion market.
2. Channel: Expanding stores and improving store efficiency together drive growth. 1) Number of stores: 2023H1 store structure optimization (the number of stores at the end of the period was 1193, a net increase of 2 from the beginning of the year; 47 were newly opened and 45 were closed; of which 579 were directly managed and 614 were joined), we judged that the 2023H2 brand opened smoothly and is expected to accelerate in 2024. It is estimated that the number of stores in 2023/2024 is expected to increase net by 80 home/120~150, respectively, with increases of high units/low double digits, respectively.
2) Store efficiency: The company's customer base is highly sticky, and the sales staff incentive mechanism is perfect. At the same time, brand power and product strength continue to be upgraded. We judge that store efficiency grew steadily year-on-year in 2023. It is estimated that it was mainly driven by the improvement in the quality of retail operations.
3. Marketing: The company firmly grasps the mentality of the customer base, and frontline sales personnel carry out targeted customer base maintenance, while accurately exposing traffic, including cooperating national teams competing in the Paris Olympics and cooperating central media to share brand ideas.
Excellent cash flow and continuous optimization of inventory turnover. 1) The company's products can be sold for a relatively long time. At the same time, using channels such as Olay to remove inventory, we judge that the company's overall inventory is currently manageable and the storage structure has been optimized. At the end of 2023Q3, the company's inventory remained flat at 690 million yuan year on year. The number of inventory turnover days for the first three quarters was -28.4 days to 296.8 days year on year. 2) The company has excellent cash flow, laying a solid foundation for future business activities such as opening stores. The monetary capital on the 2023Q3 final account reached 2.09 billion yuan (estimated to exceed 2 times the net profit for the year).
Investment advice. The main brand is a sports, fashion, and high-quality track. Other brands are expanding the ceiling for long-term development. We expect net profit to be 9.50/12.07/1,479 billion yuan from 2023 to 2025. The current price is 15 times PE in 2024. Medium- to long-term performance is expected to grow rapidly, and there is room for improvement in valuation, and maintain a “buy” rating.
Risk warning: Risk of fluctuations in the consumer environment; channel expansion falling short of expectations; Venice brand incubation falling short of expectations; brand acquisition results falling short of expectations; sports fashion boom falling short of expectations.