The company's revenue in 2023 was +6.5% YoY to 27.70 billion yuan. Net profit was -21.6% YoY to $3.19 billion.
Gross margin remained flat, and investment in advertising and channels dragged down net profit performance. The management gave double-digit guidelines for revenue growth and low net profit margins for the full year of 2024. In the future, it will further cultivate product innovation, improve channel efficiency in high-tier markets, and expand low-tier emerging markets. The company's net profit scale from 2024 to 2026 is estimated to be 3.340 billion yuan, 3.63 billion yuan, and 3.09 billion yuan, respectively, with year-on-year growth rates of 5%, 9%, and 8%. The current stock price corresponds to 24PE15X and 25PE14X, maintaining a highly recommended rating.
The company's revenue in 2023 was +6.5% YoY to 27.70 billion yuan. Net profit was -21.6% YoY to $3.19 billion.
1) Channel division: Excluding Li Ning Young, online revenue increased 1% year-on-year to 7.5 billion yuan. Offline direct revenue increased 29% year over year to 6.7 billion yuan, and offline distribution revenue increased 1% year over year to 11.8 billion yuan.
2) Number of channels: In 2023, the total number of the company's offline stores increased by 65 to 7,668 compared to the beginning of the year. Among them, the Li Ning brand decreased by 55 to 6240 compared to the beginning of the year (1,498 directly managed and 4742 distributed), and Li Ning Young increased 120 to 1,428 compared to the beginning of the year. The company adheres to the big store strategy and store upgrades, and the number of nine-generation image stores exceeds 230. The average number of units in the company's store area increased to 245 square meters, and the average monthly store efficiency increased by a high number of units. In 2023, omni-channel same-store sales decreased the number of units. Among them, the retail channel increased the low number of units by 0%-20%, the wholesale channel decreased the number of units, and the e-commerce channel decreased the number of high units.
3) Retail turnover: In 23Q4, overall turnover increased by 20%-30%, e-commerce increased the number of units in the year-on-year increase, direct sales increased by 50%-60% lower, and wholesale increased by 10%-20% year-on-year.
4) Look at retail sales performance by category: The growth rates of basketball, running, fitness, and sports in 2023 were flat, +40%, +25%, and flat, respectively.
Gross margin remained flat in 2023, and investment in advertising and channels dragged down net profit performance. The company's gross margin remained flat at 48.4% year over year. The sales expense ratio also increased by 4.6 pct to 32.9%. Against the backdrop of a slowdown in the main revenue growth rate, the company's advertising investment increased, high-ranking market channel layout led to an increase in store expenses, and an increase in asset impairment in loss-making stores. The management fee rate also increased by 0.3 pct to 4.5%. Net profit margin fell 4.2pct to 11.5%.
Inventory turnover efficiency is stable, and net operating cash flow is abundant: By the end of 2023, the company's total channel inventory decreased by the number of units, inventory turnover was 3.6 months, and new products within 6 months accounted for 87% of channel inventory, which was basically the same as the previous year. The company's inventory turnover days also increased by 5 to 63 days. Operating cash flow increased 20% year over year to 4.7 billion yuan.
Profit forecast and investment suggestions: As a leading domestic sports footwear and clothing brand, Li Ning is deeply involved in professional sports product research and development, and has upgraded the brand from the public to the middle and high-end, breaking the ceiling of a single brand. Management plans to improve efficiency and expand in low-tier emerging markets in high-tier markets, providing double-digit guidelines for annual revenue growth units and low net profit margins. The company's revenue scale for 2024 to 2026 is estimated to be 29.336 billion yuan, 31.812 billion yuan, and 35.438 billion yuan, respectively, with year-on-year growth rates of 6%, 8%, and 9%. The net profit scale was 3.340 billion yuan, 3.63 billion yuan, and 3,909 billion yuan respectively, with year-on-year growth rates of 5%, 9%, and 8%. The current stock price corresponds to 24PE15X and 25PE14X, maintaining a highly recommended rating.
Risk warning: the recovery of customer flow falls short of expectations and the risk of sales performance; failure to clean up inventory causes discounts to deepen the risk of erosion of profits; increased online traffic costs erode the risk of profit.