Introduction to this report:
According to the performance forecast, 2023Q4's profits are under pressure, mainly due to IRO Paris' poor overseas business operations and a loss of 90-1 billion yuan in the company's estimated goodwill; multiple brands are expected to continue to develop collaboratively in 2024, and the performance is expected to return to health.
Key points of investment:
Investment advice: According to the performance forecast, the company lowered the 2023-2025 EPS forecast to 0.33/0.85/0.98 yuan (previously, 0.82/1.10/1.38 yuan) due to impairment of goodwill, gave 12 times the 2024 industry average PE, lowered the target price to 10.2 yuan, and maintained a “gain” rating.
Incident: The company released a performance forecast. Net profit due to mother is expected to be 1-130 million yuan in 2023, an increase of 389-536%; of these, goodwill depreciation of 0.9-100 million yuan. If this effect is excluded, the amount due to mother is 2-230 million, an increase of 878-1025%; deducted from non-return mother of 0.76 to 106 million, an increase of 1428-2032%. Net profit attributable to mother is expected to be -0.4 to -0.1 billion in 2023Q4, which is lower than expected due to impairment of goodwill.
Domestic business performance was steady, and overseas business dragged down the company's profits. In 2023, with the gradual recovery of the post-epidemic business environment, the company's multi-brand matrix collaborated to drive revenue growth of 20-25% year-on-year to 2.9-30 billion yuan, an increase of 22-27% over 2021. By the end of 2023, the number of the company's stores is expected to reach around 651, of which 503/148 are direct-operated/franchised, net +43/-5, while online sales are expected to grow steadily. As newly opened stores gradually climbed down during the pandemic, the cost ratio was optimized (Q1-3 sales/management expenses ratio -0.4/-1.0pct year-on-year), and domestic business profits are expected to basically return to 2021 levels. However, due to high inflation and the geographical situation in Europe and the US, IRO Paris' overseas business performance has been greatly impacted, and the profit pressure on future overseas business is still strong. As a result, the company's estimated goodwill depreciation of 90-1 billion dollars, dragging down performance.
There is still plenty of room to open multi-brand stores, and the 2024 performance is expected to return to a healthy return. In 2023, the Selfportrait, Laurèl, and IRO Paris brands performed well in the domestic market. As of the end of Q3, the number of stores was only 52/87/111. Compared with domestic high-end clothing brands, there is still plenty of room to expand stores. Furthermore, the full calculation of goodwill impairment in 2023 will help ease the negative pressure of overseas business on the company's overall profit in 2024, and the 2024 results are expected to return to health.
Risk warning: The progress of store expansion falls short of expectations, and the profit performance of overseas business falls short of expectations